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COSELLE CNG: Economics and Opportunities A New Way To Ship By Sea

David G. Stenning Cran & Stenning Technology Inc. Calgary, AB, Canada, 403 263-6397 [email protected] GASTECH 2000 Houston Texas, USA November 2000

Develop Stranded Gas Reserves using Coselle CNG Technology In numerous instances worldwide, gas reserves are stranded because neither LNG nor pipelines can economically exploit them. LNG generally requires an onshore LNG plant and fairly large volumes making it difficult for LNG to commercially serve offshore reserves, small markets, or small reserves. Pipelines are often defeated by long marine distances, small reserves or difficult marine environments (deepwater, ice scour, or environmental concerns such as fisheries). Coselle CNG technology provides an alternate gas transportation system that economically fits between pipelines and LNG. Coselle CNG serves the gas transportation markets in the following circumstances: 1. Marine distances less than 2000 miles. 2. Long or difficult pipeline routes. 3. Projects where the economics benefit from the scalability and flexibility of Coselle CNG enabling the transport system to grow incrementally with demand or be redeployed to new reserves or markets. 4. Projects that requiring an offshore gas loading or offloading system.

The Economic Case To judge the economic merit of Coselle Coselle CNG - Transport Tariff Comparison CNG transportation it is compared to its (includes compression, terminals and vessels) alternatives – pipelines and LNG. $3.00 Figure 1 compares the cost (expressed single-train LNG: 400 mmscfd as a tariff) of Coselle CNG, LNG and a $2.50 continental shelf marine pipeline for a $2.00 project of 400 mmscfd. Site-specific Conventional Subsea issues can dramatically change pipeline $1.50 Pipeline: 400 mmscfd costs so the pipeline cost curve is only illustrative. There are many instances $1.00 Coselle CNG: 400 mmscfd below 500 miles where pipelines cannot Tariff in $/mmbtu $0.50 compete with CNG due to a number of factors that are discussed later in this $0.00 paper. 0 400 800 1200 1600 2000 One-Way Distance in Miles The transport cost is expressed as a tariff and includes all plant and Figure 1: CNG v. LNG v. Pipeline: Costs transportation costs from the time the gas stream enters the delivery facility (compression or liquefaction) to the time it exits the receiving facility (re- gasification or decompression). The single-train LNG tariff and pipeline tariff are from a variety of public sources and have taken into account the recent significant decrease in LNG costs and improvements in pipe Page 2 laying technology. The CNG facilities costs are based on project financing with an 18% return on equity and a 15-year project life. The ships are chartered with a 20-year life expectancy and no salvage value. LNG costs can be reduced significantly by assuming multi-train facilities (higher volumes). Coselle CNG costs can also be improved with both volume and design improvements. These issues are addressed later in the paper.

Status of Development Coselle CNG technology has attracted international attention. A 1999 public study commissioned in Newfoundland, found that Coselle “CNG transport has significant merit, especially for early field development, or exploitation of associated gas from an existing platform” (Ref. 3). In a recent paper to the Gas Processing Association’s annual convention in Nashville, Tennessee, Wagner of Fluor Daniel concluded that Coselle CNG technology offers the best potential for commercially utilizing the solution gas produced on Canada’s East Coast (Ref. 4). In another paper by Haynes, Alderson and Martin of BG Technology (British Gas) entitled “Commercializing Stranded Gas Reserves”, the authors note that Coselle CNG is a new technology that has considerable promise and that BG Technology “was pleased to sponsor a potential joint industry development to help commercialize the Coselle concept” (Ref. 1). This Joint Industry Project (with nine major industry sponsors) reached the following conclusions: 1. Coselle CNG ships and barges can be used to load natural gas offshore. 2. Coselle CNG ships and barges can safely carry associated gas rich in hydrocarbon liquids. 3. Shipyards and ship owner/operators have developed the capital and operating cost of Coselle CNG ships and barges. 4. Based on these costs the economics of Coselle CNG indicate a broad market niche - see Figures 1 and 6. 5. There are many improvements possible, lower gas storage temperatures, higher strength steel, improved manufacturing costs and others. These improvements offer a 30% reduction in transport tariff (Figure 7). A paper presented in June 2000 by Worley International Inc., “Natural gas Development Based on Non-Pipeline Options – Offshore Newfoundland” concluded that Coselle CNG offered significant advantages for stranded gas exploitation and that there were no significant technical hurdles (Ref. 5). The Coselle CNG carrier design has been submitted to ASB, DNV and Lloyd’s. Classification guidelines for this new class of vessel have been prepared. Phase 1 and 2 safety studies have been completed. The conclusion of this work is that Coselle CNG ships can meet Class requirements and are “at least as safe as other gas ships”.

Coselle CNG projects are now being evaluated and commercial interest is being sought to provide the financing necessary to build and test the Coselle gas storage unit and begin a pilot project. Before discussing the commercial applications of the technology it is necessary to summarize the history of CNG and important technical and cost aspects of a Coselle CNG transportation system.

History Over the past 30 years there have been several attempts to develop a commercially viable CNG Carrier. In the late 1960’s a CNG ship using vertical pressure bottles was tested in New Jersey harbour (Figure 2 - inset). However, this and subsequent attempts failed to produce a commercial CNG Carrier, primarily because of the prohibitively high cost of the pressure vessels. The discovery and development by Cran and Stenning of a new type of pressure vessel, called a ‘Coselle’, radically improves the economics of CNG marine transport. Figure 2 shows a Coselle CNG Carrier with a submerged turret loading system for offshore loading and un-loading. Page 3

A large portion of a typical CNG Carrier’s Bottle Ship capital cost is the gas containment system and circa 1960s associated safety and gas control systems. Therefore, the safety and cost of the gas containment system is critical to the economics of CNG marine transport

Coselles cost a fraction of conventional pressure bottles (or bullets) and yet maintain at least an equivalent level of safety. For example, a Coselle CNG Carrier of 330-mmcf capacity would cost about $115 million whereas an equivalent CNG “bottle” ship would cost at least $300 million. Figure 2: Coselle CNG Carrier Coselle CNG Technology The central idea behind the Coselle is to create a large but compact CNG storage system, using pipe. “The Canadian Company, Cran & Stenning Technology have approached the pressure vessel problem from another direction. A pipeline is, after all, a very long, thin pressure vessel. By coiling a series of pipes Cran & Stenning have produced a compact gas storage system suitable for ships called Coselle. Pipelines are a tried and tested technology which are manufactured in bulk and therefore offer lower costs per unit volume of storage than pressure vessels.”(Ref. 1) A typical Coselle is shown in Figure 3. It consists of several miles of small diameter pipe coiled into a carousel (hence the word “Coselle”). Coselle technology is patented and has inherent cost, safety, and inspection advantages over conventional pressure vessels. Patents: Coselle CNG technology is protected by three United States patents and international patents Coselle Particulars pending in over forty countries. Coselle Safety: The small diameter of the Coselle pipe Outside diameter 50.0 feet decreases both the likelihood and consequences of Inside diameter 10.0 feet rupture compared to large diameter vessels. The Height 11.25 feet likelihood is less because thin walled line-pipe is Total weight 445 tonnes more ductile and thus less likely to suffer a Pipe propagating crack (rupture) than a thick walled Pipe OD 6.625 inches pressure vessel. The consequences are less because, Pipe wall 0.25 inches even if fully ruptured, the gas flow from the Coselle Pipe length 9.9 miles pipe is effectively choked by its small diameter and Gas (GHV = 1080 Btu/scf) so the decompression energy is released more slowly Gas pressure 3,000 psi than would be the case in a large diameter pressure Gas temperature 50 deg. F vessel. Total gas weight 71 tonnes Sales gas capacity 3.1 mmcf Cost: 90% of the Coselle is made from conventional six-inch, 1/4” wall, line-pipe. The remaining 10% is Figure 3: Coselle Particulars Page 4 steel plate used to fabricate the carousel. Steel pipe of this diameter and wall thickness is a mass manufactured product of large volume and highly competitive industries. Manufacture: The manufacture of large pressure vessels is a specialized industry with limited capacity to mass- produce the thousands of vessels needed for a large marine CNG project. Coselles, on the other hand, could easily be produced within the current pipe market for virtually any size of project. Simplified control systems: Manifolding hundreds of pressure bottles together, each with a control valve, two relief valves (as required by code) and drain is complex and expensive. The coselle design reduces the number of vessels by at least 50-fold with a corresponding reduction in the complexity of the manifolding and control systems. Inspection: Coselles can be rigorously inspected by an ultrasonic intelligent pig. The accuracy, simplicity, speed and automation of coselle inspection enhance safety and reduce operating costs compared to the inspection techniques used with conventional pressure vessels.

Principal Particulars Ship CNG Cargo Length overall 243.0 m Total number of coselles 108 Length between perpendiculars 231.8 m Total gas capacity 330 mmcf Breadth moulded 38.0 m Total gas weight 7,700 tonnes Depth moulded at side 25.9 m Service draught moulded 10.3 m

Figure 4: Coselle CNG Carrier: Principal Particulars

A Coselle CNG Carrier A Coselle CNG Carrier must meet stringent international rules for its design and construction. These rules are specific to its cargo. For LNG and other existing gas ships, these rules are embodied in the International Gas Page 5

Code (IGC), promulgated by the International Maritime Organization. CNG does not classify as a cargo under the IGC, but in order to ensure a conservative and acceptable design these rules were followed where applicable. Coselle CNG Carriers are essentially bulk-carriers with their holds filled with Coselles. In order to provide a basis for costing and regulatory review, the design of a panamax sized (60,000 dwt) Coselle CNG carrier was developed. In this design, Coselles are carried in stacks of 6 high within the ship’s hold. In total there are 18 stacks of coselles (108 coselles per ship). Each Coselle holds 3.1 mmcf of sales gas so the ship’s capacity is 330 mmcf. Figure 4 shows a general arrangement of the ship with its principal particulars. For safety, the holds are inerted with nitrogen in order to eliminate the danger of fire below deck. All valves and fittings are installed above deck to facilitate servicing.

A Coselle CNG Tug/Barge Unit For smaller volume and/or distance projects it is possible to mount the Coselles onto a barge. An articulated tug barge unit was designed that carries 80 mmscf of gas in 28 Coselles, stacked two high on deck (Figure 5).

Safety and Regulatory Approvals In the marine world, classification societies are assigned the task of advising the host and flag countries with respect to the safety of a particular Figure 5: Articulated Tug/Barge Unit, (80 mmscf) ship and its cargo. Two of the largest classification societies, Det Norske Veritas (DNV) and the American Bureau of Shipping (ABS) have examined the Coselle CNG Carrier. DNV, who carried out the safety study, concluded that “a (Coselle) CNG ship is at least as safe as other gas ships“ which means that a Coselle CNG Carrier can be classed and allowed to trade as other gas ships (LNG & LPG). ABS provided the classification guidelines for the vessel, which means that the Coselle CNG ship can be classed and registered as an ABS A1 E “”. The favourable response by the class societies to this concept is largely due to the excellent safety record of LNG Carriers, coupled with the fact that a Coselle CNG Carrier has several inherent features that further enhance safety, namely: Cargo division: A Coselle CNG Carrier has 200 times greater cargo division than an LNG Carrier. Therefore, in the event of a major tank failure, the potential spillage would be correspondingly less. Resistant to external loads: Two of the hazards of marine transportation are collision with other ships and grounding. The ability of a Coselle to withstand external impact without rupture is many times that of an LNG tank. This is because the need to retain high-pressure gas results in a design that is inherently resistance to outside damage. This is well illustrated by the safety record of CNG cylinders in vehicles. In a 1996 study by the Gas Research Institute (Ref. 3), steel cylinders were judged twice as safe as their nearest competitor and it was noted that “essentially no damage has occurred to steel cylinders that have been involved in numerous vehicle accidents”. Not a cryogenic liquid: Unlike LNG, CNG is a gas, not a cryogenic liquid. In the event of an accidental release, even a major one, CNG will vent to atmosphere. Therefore, there is no danger of putting the ship in jeopardy due to low temperature embrittlement of the ship steel by a flow of cryogenic liquid, as could be the case for a major LNG tank failure. LNG ships have secondary containment systems to prevent small leaks from contacting ship steel but these would have limited effect in a major rupture. The engineering work already undertaken has proven that a Coselle CNG Carrier can safely and economically provide the marine transport link in a natural gas transportation project over a large range of distances. Page 6

Terminals, Onshore Facilities and Reliability A Coselle CNG transportation system requires facilities to load and off-load the ships. One important conclusion of the recent Joint Industry Project was that CNG marine terminals required no new technology. All of the needed high-pressure hoses, connectors, and swivels are available “off-the-shelf”. Another main conclusion was that the mooring systems presently used for oil tankers could be adapted to CNG. This provides a Coselle CNG project with a wide range of existing marine terminals from which to choose. For difficult exposed environments, an STL (by Advanced Production Loading) might be required while an inexpensive CALM buoy could be used in sheltered water. At the loading terminal, dehydration, compression, and cooling are needed and at the discharge terminal scavenging compression (Coselles are evacuated to 150 psi) and heating are required. All of the loading and unloading facilities are conventional equipment. Storage may or may not be available or required. If storage is required and not available the ships provide the storage and continuous supply is achieved by the ships remaining at the terminals until the next ship in the chain arrives (similar to shuttle tankers). This is the basis for all costs described herein. In reality this is a very conservative assumption since there are usually some alternatives to storage such as: 1. At a power plant, liquid fuel could be stored in a conventional tank for upset conditions. 2. CNG deliveries into a pipeline grid need not be continuous since the gird normally has large storage capacity. 3. CNG could be delivered at high rates during peak daily periods and low rates otherwise. 4. If gas is being supplied from an offshore oil production platform the gas could be re-injected in upset conditions or the rate of production slowed to meet the CNG ship schedule. Shipping is a very reliable enterprise. The best example of this is the oil transport system from the Heidrun platform in the North Sea where the only storage is provided by the tankers – similar to a CNG system. The following is an expert from a press-note that followed a severe storm in January 2000. “Production is delivered directly into a shuttle tanker moored to one of the two STL buoys delivered by APL to the field. The three shuttle tankers, Navion Norvegia, Navion Europa and Randgrid are able to connect to the STL systems in significant waves up to 5.5m. The vessels can stay connected and disconnect up to the 100 year condition of 15.5m significant waves. At Heidrun, the average daily production has been close to 230,000 barrels/day since the start in October 1995. Offtake regularity has been 100% and in January 2000, close to 400 successful connections to the buoys have been performed.” - Arendal 10.01.2000

CNG v. LNG v. Pipeline The characteristic difference between a CNG project and an LNG project is that the onshore facilities required for CNG are comparatively simple and inexpensive. The characteristic difference between a CNG project and a pipeline project is that the pipeline is fixed, and may have to transit several political jurisdictions, whereas CNG Carriers transit directly between the host countries and can be easily redeployed. These considerations result in several important project advantages for Coselle CNG: 1. 80% of the investment is in ships which, a. Lowers risk - if for example, the onshore facilities are in an unstable country it would be more preferable to expose a compression plant to political risk than a liquefaction plant because the investment is lower (1/30th) and potential for loss is much less. b. Facilitates finance - rates for ship financing are generally low and debt/equity ratios high. It is common for ships to be 80% or more debt financed and it is also possible for the project Page 7

proponent to offer a long-term charter to a ship owner/operator and thus avoid any front-end capital investment for the ships. c. Provides favourable taxation - in many jurisdictions (including Canada) income from international shipping attracts minimal or zero tax. 2. The threshold volume required for a Coselle CNG project is relatively small and can easily grow in step with demand. a. A major economic hurdle for LNG and pipelines is that large threshold volumes and reserves are generally required. b. In a subsea pipeline that means over-capacity for several years then a need to lay another line as demand grows beyond capacity, and then years of over-capacity again. c. Coselle CNG can begin at modest volumes with few ships and match growing demand by increasing compression and adding ships. d. Typically, Coselle CNG can meet incremental demand growth in steps of about 50 to 100 mmscfd - depending on ship size and distance. 3. Coselle CNG ships could be built in most reasonably sized shipyards so prices will be competitive and local industries can be employed. Many developing countries could participate in providing the steel, the pipe, the ships and the marine crews. 4. CNG is “green” technology. a. The energy consumed in a CNG project is about one half to one third that of a LNG project and one seventh that of a methanol project or GTL project. b. By facilitating the movement of natural gas to the highly efficient combined cycle power plants, it will help reduce greenhouse emissions, opening the possibility for carbon tax credits. c. Once the ships reach the end of their service life they can be sold as scrap and recycled. 5. Loading and unloading from offshore terminals is possible. a. Harbours can be avoided in situations where the harbour is crowded, or costly, or where the authorities would prefer the ship to moor away from populated areas. b. Loading associated gas directly from a platform is possible. Raw gas would require some treating on the platform to remove corrosive elements like H2S and water but is otherwise suitable for loading directly onto the Coselle CNG Carrier. Associated gas, in many instances is simply flared (e.g. Nigeria) or re-injected (Canada’s East Coast). Where nearby markets exist, Coselle CNG provides an economic means of delivering this waste gas to consumers.

Cost Analysis Many of the costs associated with marine-based gas transportation will be project specific. For example the cost of the onshore facilities will depend on the country and terrain, and the cost of the marine terminal will depend on the harbour requirements. Project specific factors often make early judgments concerning the economics of a new technology very uncertain. However, in a Coselle CNG project, the ships comprise 85% of the total project cost that, to a large extent, can be priced independent of the project. Furthermore, there are few unknown costs related to the ships, they are essentially conventional bulk carriers and the Coselles are mostly steel pipe. The only new element is the coiling of the pipe in the carousel. The Coselle fabrication cost was developed with pipe manufacturers, pipeline coiling contractors and coiling machinery fabricators. In view of the above, the general economics presented herein fairly represent real projects. Page 8

One of the tasks undertaken in the recent Joint Industry Project was to confirm all costs including the ship. Thirteen shipyards were visited and provided with a detailed shipyard specification for a Coselle CNG Carrier from which to prepare a cost estimate. The best all-around costing came from the Korean yards and concluded that the price for the first Coselle CNG carriers (108 Coselles per ship) would be between $110 and $120 million. Further ships could see significant cost reductions due to competition and standardization falling to about $100 million per ship. The ships’ operating cost was estimated based on input from three large ship operators. The conclusion was that an annual operating cost of $3.2 M/y exclusive of fuel was reasonably conservative based on international operations. The cost includes special crew for operation of the gas discharge and loading system. The onshore facilities were also defined and estimated based on a Middle East project. The terminal costs were based on a near-shore SBM for both loading and offloading. These costs, coupled with project development costs and typical financing and return on investment considerations, yielded the transportation tariffs shown as the “conservative” curve in Figure 7 below.

Economies of Scale A Coselle CNG project has a lower economic threshold than LNG and is able to grow incrementally Coselle CNG with demand. However, the economics of a Coselle Transport Tariff v. Volume CNG project are also affected by volume. Figure 6 $1.90 shows the effect of changing volume on a Coselle $1.70 800 mile route CNG project using ships over an 800 statute mile $1.50 route. As shown on the curve the largest effect is for $1.30 volumes less than about 300 mmscfd. $1.10 For smaller volume projects the Coselle CNG ship is $0.90 Tariff ($/mmBtu) replaced with a Coselle CNG barge. The cost of a $0.70 Coselle CNG tug/barge project cannot be fairly $0.50 represented by a general curve because the costs 0 200 400 600 800 1000 1200 depend on many site-specific factors such as: local tug Volume (mmscfd) & barge costs, jetty availability and cost, etc. However for a distance of 150 miles and a volume of 50 mmscfd Figure 6: Effect of Volume on Cost the cost for CNG transport in is between $0.60 and $1.10 per mmBtu.

Improvements Like all new technologies, once implemented there will be a drive to reduce costs. Costs can be reduced through improved engineering and by improved commercial arrangements. From an engineering perspective the work to date has taken a conservative approach in most areas of design. The key to lowering cost is to store more gas per tonne of steel carried – increase the gas storage efficiency. There are three main ways to do this; increase the strength of the steel, lower the gas temperature, and/or increase the allowable working stress. Table 2 lists the current values and the achievable values with the % increase in gas held per tonne of steel associated with each variable (gas storage efficiency). The net result is an increase in storage efficiency of 30%. This has the effect of significantly lowering the cost of Coselle CNG transport. None of the improvements listed are outside of normal engineering practice. The Classification societies require a first principles design for this unique gas storage system so from an engineering perspective the improved values are achievable and likely – even on the first project. Page 9

Table 1: Improvements to gas storage efficiency

Gas storage Variable Current Improved efficiency Steel yield strength 70 ksi 80 ksi +14% Working Stress as a percentage of yield 52% 60% +15% Gas Temperature 50 oF 0 oF +20%

Commercial gains are difficult to discuss before the first ship has been constructed. However in discussions with shipyards and ship owners it appears that the present cost has $15 to $20 million in the basic ship cost to account for the non-standard design and shipyard uncertainty. The evidence for this is that a standard panamax bulk carrier of 60,000-dwt capacity costs between $30 and $35 million in the current market while the basic ship for a Coselle 60,000-dwt bulk carrier is estimated at $50 million (without Coselles or manifolding). With the reasonable improvements noted above the 108 Coselle CNG ship could be constructed for $100 million and would hold 415 mmscf. This is compared to the current design in the table below.

Table 2: Current v. Improved ship design and cost

Design Gas Stored Cost of Ship Cost/scf Improve- stored ment Current 330 mmscf $115 mil 0.35 +0% Improved 415 mmscf $100 mil 0.24 +45%

Storing cooler gas requires some refrigeration that increases the facilities cost. Also in order to fill the greater volume additional compression horsepower is needed.

The net economic result of these improvements is shown in Figure 6. With the Transport Tariff Comparison above improvements Coselle CNG can (includes compression, terminals and vessels) provide 25% lower tariffs than with multi-train $3.00 single-train LNG projects to distances up to 2000 miles. $2.50

$2.00 multi-train It is important to note that the Coselle CNG LNG tariff is based on 400 mmscfd. While $1.50 conservative economies of scale are not as critical to CNG Coselle CNG: $1.00 400 mmscfd as they are to LNG there are some benefits to Tariff in $/mmbtu improved using larger ships than are presently designed, $0.50 especially for larger volumes and distances. $0.00 0 400 800 1200 1600 2000 Finally since the gas is paid for on the basis of One-Way Distance in Miles its energy content, transporting rich associated Figure 7: Tariff: Improved CNG v. multi-train LNG gases can significantly enhance the economics of Coselle CNG transport. In the Joint Industry Project a wide range of natural gas compositions were studied by Fluor Daniel who concluded that the Coselles can safely load, store and discharge rich associated gases providing they were dehydrated to prevent hydrate formation and that the temperature in the Coselles was Page 10 controlled to prevent steel temperatures below –40 degrees centigrade. These issues were easily solved by design – recycling warmed gas, increasing the stored gas temperature, adding dehydration etc.

Market Analysis Considerable engineering effort has gone into the development of Coselle CNG technology. The completed work is sufficient to allow a pilot project to proceed with confidence into the final design and testing phase. This will be the next significant step in the commercialization of this technology. To find the first Coselle CNG project a study was undertaken that examined the worldwide potential market for this technology. Essentially there are two main trades for Coselle CNG: 1. The shipping of gas from a producing region to consumers separated by sea, and 2. The shipping of associated gas from offshore platforms to nearby infrastructure that can either use the gas or deliver it to other markets. The majority of the first trade, international gas shipping, can be grouped into geographical areas, The separates the growing gas markets of southern Europe from the vast gas reserves of the North African states. The distances involved range from 450 to 1,200 miles and Coselle CNG shipping costs would range from $0.80 to $1.40 per mmBtu. The Black Sea separates Russian reserves from the growing gas markets of Northern . The distances are between 250 and 500 miles. Subsea pipelines are difficult due to water depth and seabed conditions. Overland pipelines are difficult for political reasons. Coselle CNG is the least cost most easily implemented. Shipping gas from the coast at Krasnodar, Russia to Istanbul would cost about $0.90 per mmBtu. The Caribbean Sea separates the gas market of Florida from the gas supplies of Venezuela, Trinidad and Columbia. There are also some modest demands for gas in the Caribbean Islands and Latin America that could be served by Coselle CNG technology. The shipping cost to Florida would about $1.25/mmBtu. The Caribbean is an ideal location for a small pilot project. The Arabian Sea separates the Middle East from and Pakistan. This is a natural trade for Coselle CNG. There are several potential projects where the distances are less than 1000 miles and the entire western coast of the Indian subcontinent is less than 2000 miles from large gas reserves. This technology has tremendous potential to provide India and Pakistan with lower cost gas supplies than presently envisaged. Transport costs range from $0.75 to $1.75/mmBtu depending on distance and volume. Sakhalin Island sits immediately north of , the largest LNG consumer in the world. The massive discoveries of gas and associated gas offshore in Northern Sakhalin are currently planned to be exported via a terrestrial pipeline from North Sakhalin to an LNG port to be constructed at Sakhalin’s southern tip. From this terminus, LNG would be shipped to Japan and beyond (pipeline options are also being studied). The distance from the proposed LNG terminal to Niigata is 700 miles. It is 1100 miles to Tokyo. Looking further, it is 1100 miles to and 1600 miles to Shanghai. Coselle CNG should play a key role in economically exploiting the important gas reserves of Sakhalin Island and in many instances could be very complimentary with an LNG export scheme with LNG handling the long distance and high volume markets and CNG servicing more local markets from the same export facility at Sakhalin. The second Coselle CNG trade is shipping associated gas to markets. Associated gas often has no commercial value and in many cases its disposal is a burden to the oil production. There are many such situations worldwide, for example; Page 11

Canada’s East Coast: Hibernia and Terra Nova are only 1,100 miles from one of the highest cost gas markets in North America (Boston) and yet the associated gas is re-injected. As oil production proceeds, associated gas will become an increasing problem. Coselle CNG is the best option for the commercialization of these reserves (Ref. 4). The cost of moving gas from offshore Newfoundland directly to Boston is about $1.40/mmBtu. Recent discoveries of gas in the Sable Island region offshore Nova Scotia is also a potential market for Coselle CNG, especially if discoveries are made in deep water. Deepwater: Floating Production Storage and Offloading Units (FPSOs) are rapidly expanding the commercial recovery of oil in deep water, especially offshore Brazil and the Gulf of Mexico. At the recent Deep Offshore Technology conference (DOT98) in New Orleans, the cost of either re-injecting or piping associated gas was cited as the most limiting feature of the FPSO field development concept for deep waters. A Coselle CNG Carrier could take the gas directly from the deepwater FPSO and deliver it to a nearby market or into existing facilities in more shallow water. Distances in these cases could be less than 100 miles. Gas FPSO’s: Coselle CNG technology makes a new kind of FPSO possible – one that exploits gas as its primary objective. A gas FPSO coupled with a Coselle CNG transportation system has the potential to allow exploitation of deepwater gas fields with limited reserves. The gas FPSO along with the mooring system and Coselle CNG ships could be moved from field to field extending the life of the infrastructure and thus spreading the capital cost over more than one reservoir. In addition to facilitating transporting gas by sea, the Coselle may have on-land storage applications; CNG fuel stations: A Coselle could be buried at the gas station just like liquid fuels. Because it can be fully inspected like a pipeline using intelligent pigs this presents no more risk than the pipeline servicing the station. Peak Storage: Power plants and local gas distribution centers pay high prices for pipeline delivered natural gas during the peak demand hours. By using Coselles to store gas during the night it is possible to level out the peak demands and significantly reduce the average gas cost.

The Pilot Project – and beyond The next logical step in the commercialization of this technology is a pilot project. For a pilot project to proceed it must be small and yet have commercial merit. There are three such projects being evaluated at the present time, one of which is being developed by Cran & Stenning Technology Inc. and so can be discussed here. The others relate to small barge projects across the Black Sea and the use of Coselle gas storage for smoothing out daily demands at a LDC (local gas distribution center) – an onshore application. 130 Miles Cran & Stenning Technology Inc. is examining the possibility of moving gas from Venezuela to the Islands of Curacao and Aruba. Together these islands have about 60 mmscfd of demand and the distances are short. This would be very suitable Figure 7: Potential Pilot Project for a first barge project (see map – Figure7). Page 12

The economic potential of this project is compelling and the total investment is about $20 million assuming that the tugs and barges are chartered. There is much work left to do on this project and partners are now being sought. While this is a modest pilot project it can lead to many more Caribbean projects including the major project of shipping gas from Venezuela to Florida using a fleet of CNG carriers.

Conclusions 1. Coselle CNG is less costly than its alternatives, LNG and pipelines, when the transport distance is between 500 and 2,000 miles. 2. The modularity, scalability and flexibility of Coselle CNG transport give it further advantages over its competition, which is especially important when there are project risks such as; reserve life, political uncertainty, and market demand. 3. Since CNG can be loaded offshore, using conventional loading terminals, it can be used to transport associated gas directly from offshore platforms. This has the potential to alleviate the growing problem of associated gas disposal for offshore oil fields, especially in deep water. 4. There are many potential Coselle CNG markets and the technology is now ready for commercialization. 5. An industry champion is needed to work with Cran & Stenning Technology Inc. to undertake the pilot project and help lead this technology through to worldwide commercialization.

Final Thought Coselle CNG is at its infancy and needs industry support and industry must be rewarded for that support. LNG was also once at its infancy with many skeptics. The following quote from the Economist sums up the benefits of being an early adopter of new technology.

“For those that took an early position, LNG projects provided some of the highest-quality earnings of any business, anywhere.” The Economist, December 19, 1992

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References 1. Haynes, D., Alderson, T., Martin, P., “Commercializing Stranded Gas Reserves”, BG Technology, Paper number P0400, March 1999. 2. Institute of Gas Technology, Powertech Labs Inc., “ Storage Optimization for Natural Gas Vehicles”, study prepared for the Gas Research Institute, December 1996 3. Imperial Venture Corp., “Natural Gas Utilization Study: Offshore Newfoundland, study prepared for Atlantic Canada Opportunities Agency and Newfoundland Ocean Industries Association, 1998 4. Wagner, J.V., “Canadian Offshore Oil Production - Solution Gas Utilization Alternates”, Paper presented at the 78th GPA Annual Convention, Nashville Tennessee, March 2-3rd, 1999. 5. Worley International Inc., “Natural gas Development Based on Non-Pipeline Options – Offshore Newfoundland” for NOIA, Newfoundland Offshore Industry Association, March, 2000.