Oman LNG 2000 – 2005 the First Five Years of Operation Amor Nasser Al

GasTech 2005 Bilbao, Spain March 2005

Oman LNG 2000 – 2005 The First Five Years of Operation

Amor Nasser Al Matani Deputy General Manager

Bart P. Voet Qalhat Complex Manager

Paul Bosma Technical Services Manager

Oman LNG L.L.C.

The Oman LNG Project in the Sultanate of Oman has proven to be an outstanding success. From the onset, the project set new benchmarks for capacity, efficiency and environmental performance, combined with low capital cost and fast track project completion of just 38 months in a remote location.

After start up, Oman LNG initiated a program to sustainable improve reliability and availability and increase LNG rundown capacity by extensive process optimization and low cost debottlenecking. This has resulted in a 15 - 20% increase in capacity of the OLNG nameplate capacity of 6.6 mmtpa.

This paper will focus on the operational success of the plant since its initial start-up and provide a detailed outline of the program underpinning the growth of the Project to world class performance. The integration with the new Qalhat LNG train creates further opportunities through maximum synergy between the existing and new production facilities.

Introduction

The Oman LNG project has enjoyed continued strong support from the Government of Oman under the wise leadership of His Majesty Sultan Qaboos Bin Said. The LNG plant at the time was the largest single construction project undertaken in the Sultanate of Oman. When the first LNG cargo was delivered to Korea in April 2000 aboard the KOGAS carrier Hanjin Sur, it had taken only 9 years since the discovery of significant quantities of gas.

The Oman LNG project came into being following the discovery of significant non-associated gas reserves in 1989-1991. Oman LNG L.L.C. (OLNG) was formed in 1994 to pursue the development of the LNG Project throughout the lifetime of the plant. The shareholding in the Company consists of:

The Government of the Sultanate of Oman 51% Shell Gas B.V. 30% Total Oman 5.54% Korea LNG Limited 5% Partex (Oman) Corporation 2% Mitsubishi Corporation 2.77% Mitsui & Co. Ltd. 2.77% Itochu Corporation 0.92%

During 1994/1995, a Project Specification was prepared by the Technical Advisor (Shell Global Solutions International B.V.) with Kellogg/JGC. The Final Investment Decision (FID) was taken in 1996, following the signing of a Sale and Purchase Agreement (SPA) with Kogas for 4.1 mmtpa. The Engineering Procurement and Construction (EPC) contract was awarded to Chiyoda/Foster Wheeler (CFW).

The Government of the Sultanate of Oman 55.84 % Oman LNG L.L.C. 36.80 % Union Fenosa Gas of Spain 7.36 %

After commissioning by CFW and a dedicated Qalhat LNG Project Team, Oman LNG will start up the Qalhat LNG train and operate the three trains as one integrated complex under an Operations Maintenance Services Agreement. The Qalhat LNG train will lead to a total LNG complex capacity of some 11 mmtpa, or approximately 175 cargoes per annum. Qalhat LNG is expected to deliver the first LNG cargo in January 2006.

The further expansion shows the confidence of the shareholders and customers in the Sultanate of Oman given its economic and political stability, trained and educated workforce and strategic location at the cross roads of East and West. This is also reflected in the very strong credit rating enjoyed by Oman LNG.

Project Description

The Natural Gas feed to the LNG Plant is produced from a mixture of the Saih Rawl, Barik and Saih Nihayda fields in Central Oman. Well stream fluids from the reservoirs are gathered and processed at the Saih Rawl gas conditioning and condensate treatment plant, where the condensate is dried and exported via the main crude line. The gas is hydrocarbon and water dew-pointed to enable transport in a 360 km single phase pipeline to the Oman LNG plant.

The LNG complex was constructed on the coast of Oman 350 km south east of Muscat, and about 15 km from Sur, the nearest town. Two processing trains were built, each with a LNG rundown capacity of 10,200 tpd, equivalent to 6.45 mmtpa loaded LNG per year. Train 2 delivered the first LNG on 19th February 2000 and Train 1 was brought into production on 8th May 2000. At the time of commissioning, these were the largest LNG trains in the world. LNG from the trains is run down to two cryogenic storage tanks, each 120,000 m3.

After arrival feed gas is let down to plant operation pressure in the Gas Inlet Station where also gas custody transfer takes place. At the front of each LNG train the low levels of CO2 are removed in the Gas Treating Units based on Sulfinol D Technology. The Gas is further dried over molecular sieve and passed over a Mercury guard bed prior Liquefaction.

Process cooling is provided by once through sea-water cooling and process heating by heat transfer fluid (HTF). The LNG complex common facilities and utilities comprise instrument air, nitrogen production, water systems, effluent water treatment based bio treatment and a flare system.

Liquefaction Technology

The Oman LNG plant is a Gas turbine driven, water-cooled plant and has a number of unique features. Following the first use of Frame 6 and Frame 7 gas turbines in LNG in Malaysia Dua, Oman LNG was designed based on a GE-7EA gas turbine driving the mixed refrigerant (MR) compressor and a GE-6B 6 driving the propane (C3) compressor. 7.5 MW Electric starter/helper motors were provided for both the MR and C3 compressor string. The 4 stage C3 compressor was one of the largest (in terms of volumetric flow) installed in a Shell-advised plant.

Due to the high nitrogen content of the feed gas, a nitrogen-stripping column was designed for the endflash section of the train rather than a simple endflash consisting of a flash vessel. The use of a nitrogen column ensures a sharper split of the nitrogen components from the LNG in order to meet the LNG specification of N2<1.0 mol%. The use of this enhanced Nitrogen rejection system results in an increase in LNG, compared to a simple valve and flash drum arrangement. Hydraulic turbines in the LNG and HMR streams are installed which - for a given amount of refrigeration power - can increase LNG production by up to 4%. For Oman LNG a novel submerged turbine was developed which is capable of operating at variable speed in order to optimize efficiency over the operating range.

C3/MR LIQUEFACTION CYCLE

Colour Legend NG Circuit Fuel Gas MR Circuit M C3 Circuit

Endflash LNG Rundown System

M GE-7EA Centrifugal

C3 Cycle

Drier

LMR LPG HMR GE-7EA M

Treated To/From MR Cycle Gas Fractionation

C5+

Printed Circuit Heat Exchangers (PCHE) are used as reboiler in the Nitrogen Stripper and the End flash/Light Mixed Refrigerant recovery exchangers. Although PCHE’s are widely used in the offshore industry due to their compact size and high thermal efficiency, the use of PCHE in LNG service is not widely known. A third PCHE will be installed to increase the scrub column overhead cooling capacity and provide adequate reflux to meet the C5+ specification in LNG in the case of lean feed gas.

The Natural Gas is liquefied in the Main Cryogenic Heat Exchanger (MCHE), which is the heart of the LNG plant. At the time of fabrication, the Oman LNG heat exchangers were the largest diameter coil wound heat exchangers ever produced by APCI. In order to meet the demands of these larger process trains, APCI developed a new, proprietary bundle support system to handle the larger tube bundles. The bundle support system for this generation of heat exchangers utilizes a system of support tubes that interlock with the process tubes. The Oman LNG heat exchangers were among the first to utilize this new interlocking support system. Till date the new system has proven to be reliable.

The application of a 4 stage propane cycle, axial compressors, an end flash system, once through sea cooling water and PCHE recovery exchangers results in a very process efficient design. It set new benchmarks for capacity, efficiency and environmental performance at a low capital cost and fast-track schedule which included a construction period of just 38 months in a remote location.

The Oman LNG business strategy is based on a Five Watch towers model. The objective of the model is to show commitment to and protection of the interests of all stakeholders as summarized in its Vision: ”Our Success Lies in Creating Value for all Oman LNG Stakeholders”. Historically the watchtowers in Oman not only played a major role in protecting Oman’s settled population, but were also were a symbol of strength and honor.

Picture 2: Oman LNG Business Model – The Five Watch Towers

CUSTOMERS

CONTRACTORS EMPLOYEES & SUPPLIERS

SOCIETY SHAREHOLDER

Oman LNG has 5 years of Operating Experience starting in 2000 with the delivery of the first cargo. This time span allows one to look back and analyze the technical and organizational developments in Oman LNG from a project driven organization to wards an established young company which is proud to be a pioneer in adopting traditional Omani ideas to conduct its modern business in a global market.

In the paragraphs below this paper will highlight a number of developments related to the overall operating experience at the Qalhat Liquefaction Complex as grouped by the watch towers.

Customers

The Oman LNG project started with the Final Investment Decision (FID) taken in 1996, following the signing of a SPA with Kogas for 4.1 mmtpa over 25 years. In October 1998 an additional long term SPA was signed with Osaka Gas of Japan for 0.7 mmtpa. Recently an additional long term SPA was signed with the Itochu Corporation of Japan for 0.8 mmtpa. Short and medium term SPA’s were signed with Shell, Union Fenosa Gas, Total, BP, Tractebel, Gaz de France and Iberdrola. With the Qalhat LNG project, the customer base of the Qalhat LNG Complex was expanded by long term SPA’s with Union Fenosa Gas of Spain, Mitsubishi of Japan and Osaka Gas of Japan.

Due to its strategic location in the Gulf of Oman outside the street of Hormuz at the cross roads between East and West, LNG can be economically delivered both to the Far East, Europe and North America. The location of the LNG plant is at deep water, sheltered by the East Hajar mountain range and has been designed to handle 165.000 m3 ships. To date vessel of 145,000 m3 have called at OLNG. The Terminal Marine Operations is managed by Oman LNG Operations who act as the Harbour Authority and OLNG Terminal is ISPS (International Ship and Port Facility Security) compliance since 2004.

Oman LNG has established itself in the global LNG market as one of the most reliable suppliers, not having defaulted on a single cargo since its inception. Relations with customers are consistently enhanced through cargo diversions, swap deals and spot sales. By the end of 2004, Oman LNG delivered 462 cargoes to its broad customer base.

Table 1: Oman LNG – LNG deliveries 2000 - 2004

[Year] 2000 2001 2002 2003 2004 LNG loaded at Qalhat LNG complex [mmtpa] 2.3 5.9 6.5 7.1 6.9 LNG cargoes delivered [cpa] 37 96 105 114 110

To maximize the benefits of the young LNG industry, the Government of the Sultanate of Oman has established a shipping company. This initiative underpins the Sultanate’s intention to create a multiplier effect on the national economy and further develop its customer orientation.

Picture 3: Oman LNG – Sohar LNG

Condensate is sold on short term contracts to Mitsubishi PetroDiamond. Longer term the Condensate will be sold to the Oman Refinery Company supplying the refinery in Muscat. The Condensate produced at the plant is a by product derived from the LNG production. The quality is determined by the C5, C6plus character of the dry operated gas pipeline and typically has a Reid Vapour Pressure of some 13.5 Psi. The Condensate is virtually free of Sulphur and Heavy metals and ideally suited as refinery and petrochemical feedstock. By the end of 2004, Oman LNG delivered 113 cargoes from a dedicated jetty, allowing concurrent loading of Condensate and LNG.

Operational Success from Commissioning, Start-Up to Full Operation

In the commissioning and start up phase of the project, most staff was on a rotation scheme to maximize progress under the governing site-specific circumstances. The rotation scheme turned out to be one of the key success factors in the Project.

During 2002 and 2003, the rotation scheme was phased out and staff mobilized to Sur working on a 5/2 schedule and living in a residential complex provided by Oman LNG. Operational staff remained on rotational basis traveling either from Oman or abroad.

Staff development

At the start of the project the availability of skilled Omani labour familiar with the operation and management of an LNG project, was limited. Outside the Oil Industry, large industrial development in Oman was limited, especially in the Sharqiya region around the plant at Qalhat.

For this reason the project started with young Omani’s supplemented with experienced staff hired directly from abroad (direct hires), expatriates from shareholders and Technical Advisor. The number of nationalities amounted to over 20. This resulted in a total of some 385 staff and an Omanisation of 58% by the end of 2000. The development of young Omani staff was built up over three key phases: education, training on the job and taking the hot seat.

Education

The first phase of development of Omani staff focused on education both in Oman and abroad. Programs included the High National Diploma (HND); Business, Technology, Education Council (BTEC) and Bachelor/Master of Science.

Training on the job

Prior to the commissioning and start up of the Oman LNG facilities, training ‘on the job’ was provided at share holder facilities and the Oman Refining Company facility in Muscat. A number of staff was sent on cross postings to other operating companies and shareholder offices.

During construction and commissioning, a number of Oman LNG staff was seconded to the Project organization. From the start up onwards, staff developed ‘on the job’ with support from technical competency based training modules and on the job trainers.

Taking the hot seat

Oman LNG has a detailed succession plan identifying every position and staff member. The progression of staff is largely competency based and supported by individual competency maps, gap analysis and Personal Development Plans (PDP). The PDP includes both professional and leadership elements. Oman LNG with the support of a professional consultant is in the process of assessing the leader ship skills of a large number of staff. This assessment will further help identifying development areas for personal skills.

Whenever possible, Omani staff is placed in the ‘hot seat’ to maximize exposure and thereby development with the experienced staff taking a back seat, acting merely as a coach and safety net. At the end of 2004 an Omanisation figure of 72% was reached. Oman LNG is aiming for 90% Omanisation in 2008.

Share Holders

Health Safety and Environment

Oman LNG is committed to pursue not to harm to people, protect the environment, use material and energy efficiently and publicly report on HSE performance. This is reflected in the Health, Safety, Security and Environmental (HSSE) policy. Oman LNG manages HSSE matters as any other critical business activity. Oman LNG is ISO 14001, 9002 certified since 2001 and the laboratory is ISO 17025 certified. Oman LNG sets targets for improvement and measures, appraises and reports performance.

The HSSE management system extends to contractor staff and their organizations. Oman LNG benchmarks its safety performance with Technical Advisor against a population of over 60 refineries and gas plants. At the end of 2003 Oman LNG reached 10 million man hours without a Lost Time Injury (LTI). In 2004 a Total Recordable Case Frequency (TRCF) of 0.9 was recorded. This has been achieved by a strong HSE culture supported by preventive safety management tools.

Table 2: Oman LNG – HSSE Statistics 2000 – 2004 LTIF, TRCF trend

[Year] 2000 2001 2002 2003 2004 Annual LTIF Trend 0 0 0 1.0 0 Annual TRCF Trend 3.1 2.4 1.3 3.1 0.9

The environmental emissions were minimized during the design of the OLNG plant, in line with the forward looking environmental standards applied by the Sultanate of Oman. A recent benchmark by Merlin Associates against a number of recent projects shows that the Oman LNG environmental emissions per tonne of LNG are amongst the lowest in the world. The thermal efficiency has been optimized in the design phase, NOx emissions are minimized by the use of low NOx burners in the gas turbines and flaring has been reduced year after year through the drive for operational excellence. All waste water is biologically treated and re-used, resulting in nill waste water streams. Below some trends for the last 5 years are highlighted.

[Year] 2000 2001 2002 2003 2004 Flaring % of intake [wt%] 7.7 0.8 0.6 0.4 0.2 Emissions tonne of CO2 / tonne of LNG product 0.47 0.29 0.28 0.25 0.23

Outlets for hazardous waste are under development, including export options under the Basel Convention.

Oman LNG maintains a very open, constructive dialogue with the respective Ministry’s in Oman. Pro-active reporting, extensive monthly monitoring and reporting and “bi-annual Green Table Meetings” are used to exchange information and views.

Plant Reliability and Availability

The overall operational availability of the LNG complex is determined by the maintenance requirements for the Gas Turbine drivers and the plant reliability as a result of unplanned downtime due to unscheduled maintenance or plant trips/upsets. A number of common systems and utilities are designed based on an (N+1) or (N+2) philosophy and maintenance or unavailability does not impact on LNG production. Oman LNG is not subject to statutory inspection requirements and inspections are usually scheduled within the Gas Turbine overhaul.

As shown below, the operational reliability of the trains has increased steadily over the years to ‘best in class’ performance in 2004.

Table 4: Oman LNG Reliability rolling 12 months average 2000 – 2004

[Year] 2000 2001 2002 2003 2004 Reliability (% rolling average end of year) N/A 95.9 95.5 97.7 98.9

In 2005 and 2006 both trains will be shut down for the first time to execute a Major Inspection on the gas turbines as part of the initial 6 year turnaround cycle with inspections every 12,000 hrs (Combustion Inspection, Hot Gas Path Inspection, Combustion Inspection and Major Inspection). Based on the previous gas turbine maintenance and inspections, Oman LNG has gained the confidence to start this year with an 8 year turnaround cycle based on 16.000 hrs intervals.

It is anticipated that the operational availability over the 8 year turn around cycle will increase to well over 96%, making it best in class for gas turbine driven plants. This performance is underpinned by a rigorous defect elimination process and a strong competency development program of the workforce. Best practices and experiences from other LNG plants are available through Technical Advisor and net working with other LNG plants.

Key Learning points with respect to Reliability

After initial start-up a number of challenges had to be overcome. Two of the most important ones are the full assessment of interference of the Dry Low NOx (DLN) technology on operating conditions and ensuring a more fit-for-purpose safeguarding and control philosophy, especially for vendor packages. The use of DLN technology in the process gas turbines has presented both gas turbine vendor and client (Oman LNG) with challenging situations. In lean-lean combustion mode, the DLN system directs fuel to both the primary and secondary nozzles. Premix combustion mode is the optimum mode for emission reduction, and can be achieved at or near the combustion reference temperature. Premix mode directs fuel to both the primary and secondary nozzles, but flame is in the secondary stage only. The transfers between different modes of firing are not seamless and have resulted in a number of upsets. To minimize the risk of failures, it was necessary to develop special procedures for the transition. Because of the risk of failure associated with the transition, the combustion system was sometimes run in extended lean-lean mode (i.e. lean-lean mode throughout the entire load range). OLNG’s experience has shown that operation of a Frame 7 gas turbine in extended lean-lean mode can result in a significant shortening of the normal maintenance interval.

In the area of vendor packages it has transpired that many vendor packages are delivered with focus on protection of the vendor package itself without being aligned with the criticality of the equipment item. As an example, electrical helper motors installed in Oman LNG contained 12 thermocouples to measure the winding temperature. A failure of each individual thermocouple resulted in a trip of the helper motor, which could result in a plant trip. Significant post-start-up work has been carried out to identify criticality of vendor equipment safeguarding by using a Shell GSI methodology for classification and implementation of Instrumented Protective Functions (IPF).

Plant Production and Capacity Development

Both LNG trains were successfully performance tested in the spring of 2000. After adjusting for prevailing conditions the average LNG production was 10,400 tpd, or about 105 percent of the guarantee value. The average specific power for both trains was 10.15 kW per tonne per day of LNG produced at the rundown line. This specific power was about 95% of design after adjusting for gas composition and ambient conditions.

Following the expiration of the warranty period of the LNG trains, maximum capacity test-runs were performed at hot and cold ambient conditions. The maximum capacity established during the test-runs was in excess of 110 % of the average Design Case and was obtained by utilizing all available MR or Propane power (dependent on ambient air temperature) and by optimization of MR composition and inventory. Apart from control valves, the main bottlenecks identified were the refrigerant compressors (operating towards the end of their curves) and the MCHE shell-side pressure drop. In parallel an Advanced Process Control (APC) project was executed together with Technical Advisor for implementation on the Liquefaction facilities.

During 2003 - 2004 an extensive debottlenecking project was executed. Initial feasibility studies showed the potential to debottleneck to some 115 – 120% of design capacity with relatively minor hard ware modifications. The outcome of the above tests was used to implement a scope for minor debottlenecking: - replacement of internals in the Nitrogen Stripper column - upgrading of seals in air compressors of Gas Turbines - upgrading of the linkages of the Inlet Guide vanes of the MR axial compressors.

The increased rundown capacity, application of APC, elimination of reliability issues and improved maintenance schedule has resulted in Oman LNG being able to consistently increase its committable capacity.

Society

At the start of the project, Oman LNG and its shareholders decided to make a significant contribution to Omani Society not only by performing the primary activities described above, but also by providing Social Investment Programs. Oman LNG yearly provides 1.5% of its Nett Income After Tax (NIAT) to Community Funds focusing on sustainable development projects. The Oman LNG Forum which includes government officials, business men and senior members of the community, decides on the funding of projects nation wide. Examples are housing projects, infrastructural works, educational and medical facilities.

Contractors and Suppliers

Oman LNG intends to leverage its impact on Omani society through its contractors and suppliers. Contracts contain stringent Omanisation targets, including incentive and penalty clauses. Local capacity building is encouraged by supporting contractors that provide employment opportunities to the local community.

The first five years of operation at Oman LNG have been very rewarding, providing the basis Oman LNG’s ambition to become a Pacesetter in the LNG industry premised on 90% sustainable Omanisation.

With the ongoing strong support from the Government of the Sultanate of Oman and its shareholders, Oman LNG is confident it will successfully meet the challenges of the next 5 years and by doing so realize its vision to continue Creating Value for all Oman LNG Stakeholders.

References

Benchmarking Study Compares LNG Plant costs – Oil & Gas Journal April 14 2003, Chuck Yost, Robert di Napoli, Merlin Associates