Permian Gas Grows Up with Golden Pass LNG, Juniper & Kinetik | Energy Perspectives Podcast

Summary

In this episode of the Energy Perspectives podcast, Josh Schmidt from Juniper Capital explores the growing role of the Perian Basin in global energy production, with insights from industry leaders Jeff Hammad of Golden Pass LNG and Chris Kendrick of Kinetic. The conversation covers the booming natural gas production in the Perian Basin, challenges with pipeline infrastructure, constraints like nitrogen levels in gas, and the regulatory environment affecting LNG and pipeline development. The panel discusses the complexities of transporting gas and the ongoing developments in midstream infrastructure to meet global demand, all while addressing the economic dynamics influencing energy markets.

Takeaways

• 😀 The rise in nitrogen content in natural gas formations is becoming a significant challenge for LNG facilities.
• 😀 LNG facilities prefer gas with lower nitrogen content, as high nitrogen levels require additional energy to remove during the liquefaction process.
• 😀 Nitrogen, unlike CO2, is more difficult to handle and can cause operational issues, potentially choking the LNG facility if levels are too high.
• 😀 Higher nitrogen content in the gas impacts LNG production capacity, requiring expensive upgrades or modifications to the facility’s design.
• 😀 LNG companies are beginning to prioritize purchasing gas with lower nitrogen content to avoid costly nitrogen management challenges.
• 😀 The industry might see price differentiation for gas based on nitrogen content, with lower nitrogen gas being priced more favorably.
• 😀 Some LNG facilities, such as Golden Pass, are strategically located to handle gas with lower nitrogen levels by blending it effectively.
• 😀 Pipeline specifications (usually around 3% nitrogen) are unlikely to change, but blending techniques will continue to be used to manage nitrogen content.
• 😀 The future might see a trend toward LNG buyers favoring gas with around 1.5% nitrogen, a more manageable threshold for facilities.
• 😀 The economic impact of nitrogen management will drive future market trends, with LNG buyers seeking suppliers that manage nitrogen levels effectively.

Q & A

What is the primary reason for the growing concern about nitrogen in natural gas?

The increasing nitrogen content in natural gas is a result of the ongoing development of new formations, particularly as LNG demand grows. As areas like the Hannesville and Perian formations are being drilled, the nitrogen content in the gas extracted from these formations is increasing, becoming a bigger challenge for the industry.

Why is nitrogen problematic for LNG facilities?

Nitrogen is problematic for LNG facilities because it requires additional energy to liquefy and separate from the gas. High nitrogen levels can also limit the capacity of LNG facilities, potentially causing them to choke or trip. If not properly managed, this can lead to expensive modifications or a decrease in production efficiency.

How does the nitrogen content in the Perian and Hannesville gas fields differ?

The Hannesville gas fields primarily contain CO2 as the inert gas, with only minimal nitrogen content (about 2%). In contrast, the Perian fields have a higher nitrogen content, sometimes reaching 2-3%, and have minimal CO2, making them more challenging for LNG processing.

What are the energy implications of handling nitrogen in LNG facilities?

Handling nitrogen requires additional energy to liquefy it, which adds to the operational cost of the LNG facility. While CO2 can be more easily separated and removed, nitrogen demands more energy, reducing the overall efficiency of the facility.

What challenges do LNG facilities face when nitrogen content exceeds their design specifications?

When nitrogen content exceeds the design specifications of an LNG facility, it can choke the system, limiting its capacity. The facility may need to be upgraded or modified to handle the excess nitrogen, which involves significant costs and may require new permits, such as FK permits, which are time-consuming and complicated to obtain.

How are LNG buyers responding to higher nitrogen content in natural gas?

LNG buyers are starting to prefer lower nitrogen content gas. Facilities with a lower nitrogen content are becoming more attractive, leading to a potential bifurcation in pricing, where gas with lower nitrogen levels could command a premium.

Do you think pipeline specifications for nitrogen content will change in the future?

It’s unlikely that pipeline specifications for nitrogen content will change significantly in the future. Most pipelines are designed to maintain a 3% nitrogen level, and while there are efforts to optimize systems, the grid's interconnected nature makes significant changes difficult.

What role do blending tools play in managing nitrogen content in pipelines?

Blending tools are crucial for managing nitrogen levels in pipelines. Many pipelines have provisions in their tariff agreements allowing for slightly higher nitrogen content at receipt points, as long as the overall downstream nitrogen content stays below the 3% limit. This allows for more flexibility in handling varying nitrogen levels without breaching pipeline specs.

What is the 'sweet spot' for nitrogen content in natural gas for LNG facilities?

The 'sweet spot' for nitrogen content in natural gas for LNG facilities is around 1.5% nitrogen. This level is easy to manage and blend, while anything above 2% starts to limit the amount of gas an LNG facility can buy and process effectively.

How might changes in the nitrogen content of natural gas impact the broader natural gas market?

As nitrogen levels in natural gas rise, it could lead to market distortions, particularly in the LNG sector. Facilities may prioritize gas with lower nitrogen content, potentially creating price disparities. This shift could impact supply dynamics, as producers with higher nitrogen gas might struggle to find buyers or face lower prices for their product.