Gas: Fueling the future of energy

Sources: IEA and ERIA

As global demand for energy grows in tandem with the rapid growth of population particularly in urban areas, energy players such as the oil and gas (O&G) industry are constantly looking for ways to meet this demand by expanding its portfolio to mitigate the dependability on declining natural resources.

“For Malaysia, the foremost energy challenge lies in meeting rising demand, whilst at the same time domestic production continues to experience natural decline,” Petroliam Nasional Bhd (Petronas) chief executive officer Tan Sri Shamsul Azhar Abbas said in Petronas ‘Our Energy Future’ report.

While oil continues to be a key energy resource in Malaysia, its dwindling global supply and volatile global prices have led to the gradual focus on the rich gas resources in the nation.

Gas, according to Petronas, has the potential to be a game-changer for the energy-hungry economies of the Asia-Pacific region as the resource is geographically diffused and environmentally beneficial compared with fossil fuels.

Due to its low carbon emission and abundant supply, gas is increasingly becoming the fuel of choice for many countries.

“Globally, the estimates of existing reserves are staggering. Conventional recoverable resources are equivalent to more than 120 years of current global consumption, while total recoverable resources could sustain the level of today’s production for more than 250 years.

Sources: IEA and ERIA

“All major regions have recoverable resources equal to at least 75 years of current consumption,” said Petronas.

Concurring with this view, multinational O&G company Royal Dutch Shell plc (Shell) executive vice president Maarteen Wetselaar believed that natural gas is uniquely positioned to address the challenges faced by policy makers in Asia as part of a secure, competitive, cleaner energy future.

“For countries with large domestic gas resources like Malaysia, the impact of developing and bringing substantial additional volumes of gas on-stream can be transformational.”

Maarteen further highlighted, “We are entering into a dynamic energy era. Energy demand is set to double and the role of natural gas is set to grow in the energy mix.”

 

Brighter outlook than oil’s

International Energy Agency (IEA) and Economic Research Institute for Asean and East Asia (ERIA) in its Southeast Asia Energy Outlook 2013 outlined that the outlook for gas production is brighter than that for oil, owing to a richer resource base and growing demand in the Asia-Pacific Market.

“Gas production in Southeast Asia rises from 203 billion cubic metres to 260 billion cubic metres over 2011 to 2035, with Indonesia, Malaysia and Myanmar the main contributors.

“Liquefied natural gas (LNG) liquefaction and regasification terminals are set to play an expanded role, enabling the development of stranded resources and the receipt of increasing LNG shipments for domestic use.”

To note in Malaysia, the country’s gas production in 2011 was 56 billion cubic metres, the second largest in the Asean region.

“Production from offshore Peninsular Malaysia, including the Thailand-Malaysia Joint Development Area, has supplied rapidly increasing demand from domestic users while production from offshore Sarawak feeds the 33 billion cubic metres Malaysia LNG (Bintulu) liquefaction terminal,” the research agencies explained.

Prospects for continued exports of gas, IEA and ERIA stated, continues to remain strong in the medium term on the back of recent discoveries and new developments expected to keep the MLNG terminal operating at full capacity through at least 2018.

“Malaysia’s gas production is projected to rise in the medium term, reaching about 70 billion cubic metres in 2020, before declining slightly to 65 billion cubic metres in 2035.

“Net gas exports increase to about 30 billion cubic metres by 2020, but thereafter are narrowed by increasing domestic gas demand, falling to 17 billion cubic metres in 2035,” the research agencies projected.

With gas set to fuel the O&G industry in Malaysia, BizHive Weekly takes a look at initiatives made by two major O&G players in Malaysia.

Petronas: Golden era of gas

Gas is increasingly becoming the preferred source of energy in Asia following the understanding that it is a cleaner and greener energy source.

According to the International Energy Agency (IEA), gas’ share of primary energy mix will increase to about a fifth in 2020 and almost a quarter in 2035.

The bulk of the increase will be for the power sector and efforts are also underway to increase its use in the transportation sector.

Energy hungry Asian nations such as Japan, Korea, Taiwan and China could turn to hugely untapped unconventional gases (natural gas trapped in coals, shales and tight sands) which are found in abundance in many countries.

However, physical and geopolitical constraints means that supply through pipelines are not always feasible.

This brings into question: where are the additional gas – the cleanest burning fossil fuel – going to come from?

As such, liquefied natural gas (LNG) is expected to play a larger role in meeting the growing demand for efficient, cleaner and greener energy from environmentally conscious energy consumers in Asia.

According to IEA, LNG is currently contributing about 10 per cent of the energy requirements in Asia today. In 2035, it is anticipated that the contribution will increase to approximately 14 per cent.

Against this backdrop, the oil and gas (O&G) industry is responding quickly to this new challenge by aiming to supply more LNG to energy hungry countries in Asia.

Petronas, for instance, is embarking on new projects to increase its LNG output in the coming years through project expansion and acquisition.

In Malaysia, the national oil company will build new LNG production facilities including Petronas LNG 9 (Train 9) project within Petronas LNG Complex in Bintulu and floating LNG projects offshore Bintulu.

Incorporated in 1978, Petronas’ subsidiary company Malaysia LNG Sdn Bhd (MLNG), which operates the Petronas LNG Complex (established in 1982), is currently working on eight new capital projects to increase the plant’s production capacity and reliability as well as its bottom line.

These projects include MARLIN Project (MLNG boil off gas re-liquefaction project), MLNG Boiler Rejuvenation project (MBR), MLNG DUA rejuvenation project, CO2 Removal Capacity Restoration Project, MLNG New Boiler Project, ROSE Project, and Industrial Effluent Treatment System Upgrade.

“Our target is to produce 29.8 million tonnes per annum (MTPA) of LNG by 2016,” MLNG Group of Companies managing director and chief executive officer Zakaria Kasah highlighted during a recent media briefing and plant tour at MLNG’s 276 hectare LNG plant in Tanjung Kidurong, Bintulu.

The 2016 production target will represent a 4.1 MTPA increase from the current production output of 25.7 MTPA.

The bulk of the additional LNG molecules will come from Train 9 (3.6 MTPA) and MARLIN project (0.5 MTPA) both of which will be completed in 2016.

“The MARLIN project will enable us to recover up to eight big cargo equivalent of boiled off gas from LNG storage tanks and the vapour return during ship loading,” Zakaria explained.

“The MBR will see the rejuvenation of eight boilers. This is to improve their reliability and restore each of their capacity of 380 tonnes after some 30 years in operations.

“The MLNG Dua Rejuvenation project will ensure continued safe operation and to sustain the reliability and integrity of MLNG Dua plant for another 15 years post 2015,” he said.

As of last year, it was reported that the largest importer of MLNG’s production was Japan (62 per cent), followed by Korea (17 per cent), Taiwan (12 per cent) and China (nine per cent).

It is noted that MLNG exports all the LNG it produces using LNG tankers operated by Petronas’ member company MISC Bhd.

Currently, Petronas LNG complex houses eight production trains and has a production capacity of 25.7 million tonnes per annum.

Meanwhile, to widen its portfolio, Petronas is also embarking on a new LNG production facility known as floating LNG (FLNG) offshore Bintulu, which is set to pave way for further monetisation of small and stranded gas fields.

The Petronas FLNG1 project will contribute an additional 1.2 MTPA to the company’s LNG production capacity when completed and commissioned in 2015.

The facility will also be the first of its kind in the world, according to Petronas.

The second floating LNG project (the FLNG 2) is expected to come on stream in 2016. It is expected to add another 1.5 MTPA to the company’s LNG production capacity.

Petronas is also forging ahead with several upstream and downstream oil and gas projects between Sabah and Sarawak that include its Sabah Sarawak Gas Pipeline project.

The project, set to be completed by January 2014, will see the transportation of natural gas from offshore Kimanis, Sabah via a 512 kilometre pipeline to Petronas LNG Complex, Bintulu for processing.

In addition, Petronas is also reported to be in the midst of completing its Sabah Oil and Gas Terminal (SOGT) which will receive, store and export crude oil as well as receive, process, compress and transport the gas produced from the fields offshore Sabah.

Covering an area of about 250 acres, the SOGT will have the capacity to handle up to 300,000 barrels of crude oil per day and one billion standard cubic feet of gas per day.

The crude oil and condensate received and stored at the terminal will be loaded into vessels for export through single point moorings located about 10 kilometres offshore Kimanis, according to Petronas.

To note, Malaysia’s natural reserves currently stand at 92.12 trillion standard cubic feet and approximately 45 per cent of it reside in the Sarawak region – mostly at the Central Luconia offshore Bintulu Sarawak.

Shell: Sustaining the industry with innovation

Shell has long made its footprints in Malaysia, particularly in Sarawak, with its history dating as far back as the 1800s.

The discovery of substantial volumes of natural gas reserves offshore Sarawak in the 1960s has also led to a turning point for Shell.

Through its production sharing contracts with Petronas, Shell shares the same successful platform in terms of natural gas production.

The abundance of gas also prompted the establishment of the world’s first commercial middle distillate synthesis plant by Shell (Shell MDS) in Bintulu in 1993 or better known as Bintulu gas-to-liquid (GTL) plant.

For Shell, the key to sustaining the O&G industry while meeting the growing global demand of energy lies in innovation and collaborations.

“Our commitment to technology and innovation continues to be at the core of our strategy. Partnership is core to deliver our strategy, and we seek to develop innovative thinking and approach together with our partners around the world,” said Shell executive vice president Maarten Wetselaar.

He added, “Here in Malaysia, since Shell became a contractor to Petronas in 1976, our partnership has developed over decades and contributed to the nations’ development agenda.”

Leveraging on the realisation of the importance in collaboration to sustain the O&G industry, Petronas and Shell have embarked on enhanced oil recovery (EOR) projects in an on-going quest for hydrocarbons.

Matthias Bichsel, Shell Projects and Technology director

Apart from that, unlocking new resources is equally high on the agenda in Malaysia especially in deep waters of the ocean, Shell Projects and Technology director Matthias Bichsel said.

“Shell is partnering with Petronas and ConocoPhillips to develop the Gumust-Kakap project, in waters over a kilometre deep,” Matthias said, adding that the project is Shell’s first deepwater project in Malaysia.

“This development will feature the first deepwater semi-submersible production system to be manufactured in Malaysia.

“Peak oil production will be about 135,000 barrels per day.

“An improvement to the oil recovery is already built in, associated gas produced along with the oil will be re-injected into the reservoir,” he outlined.

To note, the development drilling of Gumusut-Kakap had begun in January 2008.

According to Shell, early production started at the field in November, ahead of the completion of the floating production system (FPS) that links Gumusut-Kakap’s production wells to the Kikeh production facility, the country’s first deep-water development, operated by Murphy Sabah Oil.

This early production is an interim measure to bring 25,000 barrels a day on stream ahead of completing the FPS.

The Gumusut-Kakap project, which is currently operated by Sabah Shell Petroleum, will see its field developed using 19 subsea wells with oil exported via a pipeline to a new oil and gas terminal, which will be built in Kimanis, Sabah.

To help improve oil recovery, natural gas that is produced along with the oil will be re-injected into the reservoir.

Another deepwater first for Malaysia is featured in the Malikai project.

“This development will incorporate the first tension-leg to be fabricated and installed in Malaysia.

“It’s a joint venture by Petronas, ConocoPhillips and Shell, and is located 100 kilometres offshore Sabah and in waters up to 500 metres deep. It involves 17 wells drilled from 23,500 tonne tension leg platform production facility,” Matthias explained.

“Malikai is an exciting oil development in Shell Malaysia’s upstream portfolio and will cement Malaysia’s position as a regional deepwater hub and centre of excellence,” said Iain Lo, chairman Shell Malaysia.

In addition, he highlighted that some of the technology innovation of which were incepted via collaborations with Shell’s partners, bridge the upstream and the downstream O&G production.

In particular, Matthias noted, is the link between GTL and LNG production of which Shell has established an active partnership with MLNG Bintulu to support Shell’s Bintulu GTL plant.

“The future of O&G in Sarawak is good because there’s a ready-made gas outlet in the Bintulu LNG plant,” Lo said.

With that, he underscored that there is a very strong incentive for O&G companies to look for gas in Sarawak.

Meanwhile, aware of the depleting oil supply in Malaysia, Lo said that Shell is progressively undertaking exploration activities while researching ways to get more out of the discovered reserves via enhanced oil recovery (EOR) initiatives.

To recap, early last year, Petronas, via its subsidiary, Petronas Carigali Sdn Bhd, had signed two product sharing contracts (PSCs) with Shell Malaysia for EOR projects off the coast of Sabah (St Joseph, South Furious, SF-30 and Barton fields) and Sarawak (nine fields in the Baram Delta).

Based on the discoveries of new reserves and initiations made to sustain the O&G production in East Malaysia as well as the nation as a whole, Lo placed an optimistic view on O&G sector and hoped that innovation and collaboration would continue to power the sustainability of the industry.

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