Terms Beginning With 'l'

LNG

  • November 13, 2020
  • Team Kalkine

LNG stands for Liquified Natural Gas. A natural gas that has been liquified below -161 degrees Celsius for the convenience of transportation and storage is known as Liquified Natural Gas (LNG). As we studied it in our elementary stage that gases occupy larger volumes because of more free molecules as compared to the same amount of liquid or solid which contains packed molecular structure. Due to the high volume of Natural Gas, transportation and storage become economically non-feasible. Whereas liquified natural gas contains around 600 times less volume as compared to natural gas in the gaseous phase.

Need to Store & Transport Natural Gas:

Due to the residential & commercial heating requirements, the net demand for natural gas is high during the winters as compared to the summers. To minimize the gap between demand and supply it is necessary to store the excess produced natural gas during summers so that it can be supplied to the consumers during periods of high demand time i.e. during winters.

Fossil fuels are not found in each & every part of the world but the demand for energy which is being fulfilled by natural gas is not limited as per the presence of Natural Gas. So, there is always a need to transport Natural Gas from one part of the world to another part to fulfil the demand and supply gap.

Conventional Storage & Transportation of Natural Gas:

Traditionally, natural gas is mainly stored in three types of underground storage systems like Salt Caverns, Aquifers, and Gas Reservoirs.

Conventionally natural gas is transported from its place of origin to the end-users with the help of a complex pipeline network which contains mainly three types of pipelines along their route of transportation:

  • Gathering system to transport low pressure raw natural gas from the wellhead to processing plant
  • Interstate Pipeline System that carries natural gas across the state boundaries
  • Distribution System to deliver natural gas to the end-users or consumers

Challenges in Storage & Transportation:

The major challenge in conventional storage of Natural Gas is the availability of storage systems and the volume of the storage system. There are numerous cases observed where the availability of natural storage is present but the basic necessities like Base Load Requirements (BLR) & Peak Load Requirements (PLR) are absent. These are basic necessities of a reservoir for holding enough natural gas for long term demand fluctuations and for a sudden increase in demand for a short-term period respectively

Usually, the transportation of Natural Gas is carried from major gas producing countries like Algeria, Australia, Brunei, Indonesia, Libya, Malaysia, Nigeria, Oman, Qatar, and Trinidad and Tobago to other parts of the world through the gas pipelines but due to limited access, gas pipelines in various parts of the world, the transportation is carried out through oil tankers in the form of LNG.

LNG terminals compress the volume of explored Natural Gas up to 600 times the original volume and make it easy to transport from one place to another, thus optimizing per unit cost of transportation.

Natural Gas to LNG Conversion:

In the past, natural gas was considered as a byproduct produced during the production of crude oil, but advancement in technology and greater energy demands pushed engineers to utilize natural gas as a source of energy too.

The natural gas stream is separated into Methane & Ethane (gaseous fraction) and Propane & Butane (liquified fraction). Propane, Butane, and other higher hydrocarbons can be stored in liquid form at relatively lower pressure whereas lighter hydrocarbons like methane & ethane are condensed by cooling down it to liquid form for easy transportation & non-pressurized storage.

LNG Transportation & Storage:

LNG can be shipped from the treatment plant via ocean or road transport network depending on the end-user destination. For ocean transport, LNG is loaded on double-hulled ships containing cryogenic tanks, that are specially constructed ships used for transportation purposes and are technically designed to transport large quantities of LNG. For road transportation, trucks mounted with cryogenic tanks can be used. Liquification & storage of LNG can also be undertaken at LNG storage facilities which can store gas in liquified form for "peak-shaving" or to balance the demand and supply gap peaks.

Offloading Gas in LNG Terminals:

The liquified gas can again be converted into a gaseous phase after unloading from the truck or ships and can be transported to the end-users. The temperature of LNG is raised in a heat exchanger unit using seawater. Various terminals also have a burner mounted system to increase the temperature of LNG to convert it into a gaseous form.

Definition – Stop Loss A stop-loss order is defined as an order to buy or sell once a specific price has been hit. Traditionally developed to limit the loss of an individual in a specific security, once the security moves in the opposite direction of the initial expectation; stop-loss order is modified to enter and exit the market at certain prices. A stop order could be broadly classified into two, i.e., a buy stop order – an order to buy a security at a specified price above the current price and a sell stop order – an order to sell a security at a specified price below the current market price. The stop order can be further refined by adding a limit, aka stop loss-limit order to change the order into a limit order once the stop is triggered. How are Stops Used for Entry and Exit? Stop orders, also called stops could be used to enter or exit an open position in the market, and technicians and traders, who follow technical analysis, use the same to enter or exit a position above and below a resistance level and a support level, respectively. For entry purpose, suppose if a price is approaching a resistance level above which a new trend is expected to develop, a buy stop order could be placed to be triggered if the resistance level is penetrated post a breakout. Likewise, an entry stop order could also be placed to sell short once the specified level had been breached. Contrary to entry stops, exit stops are used either to protect capital from further loss (protective stops) or to protect profits from deteriorating back into a loss (trailing stops) Defensive Stops Both protective and trailing stops are defined as defensive stops as they protect investors against a sudden capital loss or fall in profits. Protective Stops Not every entry in the market goes as per plan and ends up with a profit, and many traders have more losing trades than winning trades, yet many of them are able to take the profit out of the market because of the judicious use of their stops. Traders usually place a proactive stop loss below the price level, where they anticipate that the market would change the behaviour. Once the market reaches that point, protective stops usually get triggered, taking the trader out of a bad trade, and when the market does not reach that price level, the protective stops allow the trader to run the trade until reversal sign emerges. Furthermore, protective stops also decide what capital risk the trader or investor is accepting in a trade. By selecting a capital risk, establishing a stop level, and placing an order to that effect, the trader knows exactly what capital risk is being taken. Protective stops are usually placed around the crucial resistance or the support level, only. Trailing Stops A trailing stop could be used to avoid the potential loss of profits when a trade is already in profit for a trader. Many technicians or traders also call trailing stops “progressive stops”. These trailing or progressive stops are necessary because, in a major trend, the prior support or resistance may give a substantial price distance from the current price; thus, putting the capital gain on a risk. Trailing stops are usually favourite among trend traders, who systematically change their capital risk with the directional trend of the underlying security. How Directional Traders Generate Trailing Stops? Trailing stops using a trendline One of the easiest methods of identifying or generating a trailing stop is to follow the trend line with a confirmation filter. Confirmation filters such as close filter, percentage filter, volatility filter, along with the trendline, is a very good method of identifying a strong level for trailing stops while avoiding price whiplashes. However, this method requires daily monitoring and readjustment of the stop level, and another shortcoming of the method is that it does not take current volatility into consideration while deciding the trailing stop. Chandelier exit Chandelier exit method considers only the price and the intrinsic volatility to decide on the trailing stop level via measuring some fraction of the security’s Average True Range (or ATR) from its latest reversal point. Suppose on a given day a stock reversed from $100, and the present 14-day ATR is 5. Based upon the market strength traders usually decide a multiple of 14-day ATR below which they would like to place a trailing stop. For example, a trader may choose to take a 3x of ATR to decide the trailing stop while another may choose to take 6x of ATR for the same purpose. Parabolic SAR Many trend followers use parabolic SAR to decide the trailing stop. Originally developed by Welles Wilder in 1978, SAR stands for “stop and reverse”. Changing Stops and A Lesson To Abide The most important underlying principle concerning defensive stops is that they should never be moved away from the trend of security as they imply that the original analysis was wrong. A trader or investor, who changes or cancels the stop loss, especially when the underlying security is trading at a loss, generally lacks discipline and are more prone to emotional whiplash or emotional decision pressure, which is one of the leading cause of capital loss in the financial market. Do you need stop-loss if you are winning and losing big? Consider a situation, where there are two traders; and the annual returns generated by them are as below:   At first glance, it might look like that Trader A is clearly outperforming Trader B with a mean average return of 55 per cent over 4 years as compared to the Trader B’s mean of just 36.0 per cent in the same tenure. However, one needs to analyse the above data with elementary maths and one important thing about investment returns, i.e., they are multiplicative in nature rather than addictive. So, if we assume that both the traders had $100 as an initial investment, let us take a look at their net profitability at the end of Year 4. Despite a large gain profile and a higher mean average return of 55.0 per cent, Trader A ends the session with a net loss of 53.2 per cent. And, despite a low gain profile and a low mean average return of 36.0 per cent, Trader B ends the session with a net gain of 241.43 per cent. Conclusion If you have made a 10 per cent return instead of 25.93 per cent, it will take you ~2.5 years to grow your money by 25.93 per cent instead of one year; however, if you lose 25.93 per cent in the first year, it will take some time to reach breakeven. Thus, it becomes paramount to always limit your loss and be aware of your capital risk.

What is the International Maritime Organization?  International Maritime Organization – IMO – is an agency specialised in dealing with maritime affairs. The primary responsibility of this United Nations agency is the safety and security of maritime mechanisms. The global standard-setting agency also works towards reducing marine and atmospheric pollution created by ships. IMO, which was formerly known as Inter-governmental Maritime Consultative Organization, creates a regulatory framework for the shipping industry to function smoothly, fairly, and effectively. The policies developed by the authority are internationally adopted and implemented, rather than individual countries implementing their own rules and regulations unilaterally.  The agency provides a transparent platform for the shipping industry to trade internationally in order to avoid taking steps which will lead to a compromise in safety, environmental and security performance for dealing with issues such as financial. Its policies hold shipping companies responsible, which fail to follow specific procedures and compromise on safety, security, and maritime environment. With the help of new-age practices, IMO encourages innovation and efficiency in the international shipping industry.  Shipping industry is one of the most effective ways of increasing international trade. It helps In framing guidelines for a dependable and cost-effective way of transporting goods Facilitate Commerce Creates and maintains prosperity among people and Nations These customs are agreed, adopted, and implemented by the entire industry and all shipping companies of all countries. The International Maritime Organization provides a platform for the processes to assemble and enforce.    Good Read: IMO MARPOL Convention To be Implemented Soon; Impact on Stakeholders and LNG Industry   How did IMO come into existence?  Currently, the international shipping industry contributes more than 80 per cent to trade transport to people and communities across the world. Shipping has played an essential role in global trade for centuries in the past, and it also paved the way for globalisation across the world. Shipping goods through the sea is low in cost as compared to air and road transport. Many shipping nations developed and adopted international regulations and treaties to improve safety at sea in the past, especially from the mid-19th century. The countries then proposed for a global agency to be established to develop standard policies and treaties for the entire industry.  In 1948 an international conference in Geneva formally adopted and established IMO. Initially, the specialised agency was named as the Inter-Governmental Maritime Consultative Organization – IMCO, in 1982 it was changed to International Maritime Organization – IMO. Currently, the IMO is headquartered in London, United Kingdom.  Also read: Oil Search and Caltex Encountering Weaker Price Challenge Amid Market Disturbance from IMO 2020 and Coronavirus   What are the prominent roles and responsibilities of the IMO? Create a framework: A safe and efficient global shipping industry, not just provides a dependable and cost-effective mode of transport, but it also encourages trade among countries and people. The regulatory framework created and observed by IMO delivers the world a platform which is secure, economical. Implement the rules and regulations: International Maritime Organization has brought significant areas of concern under regulation. The policies have successfully prevented accidents in the past. It has set up safety and security practices which are followed by the members who deal in ships and other vessels. IMO members also have to adhere to the treaties established to reduce pollution in the sea and other human disasters which are possible to avoid.  Impose actions on the breach: IMO also provides a platform for the member nations to support each other in technical aspects. Most importantly, IMO have a set up to audition and monitor the customs and practices it has developed and impose compensations if anyone breaches these policies. Therefore, the International Maritime Organization plays a crucial role in the smooth functioning of the shipping industry.    How are the IMO handling environmental concerns?  The shipping industry is a vital element which connects the trade globally. Hence, it is important to focus on its sustainable economic growth. The member countries and overall shipping industry is working towards achieving the goal of a green economy through IMO. Earlier the framework of IMO was primarily focused on the safety of the maritime trade but in the last few years, IMO is giving utmost priority towards the maritime environment. The agency is promoting the growth and development of the shipping industry in a sustainable way.  IMO is a component of the United Nations. Currently, the agency is working on 2030 Agenda for Sustainable Development along with the associated SDGs. Sustainable Development Goals (SDGs) are the 17 goals developed by the United Nations to achieve a better and sustainable future. SGD 14 is the critical goal for IMO as it relates to the oceans goal; the agency will support a sustainable maritime transport industry. The primary aim of the implementation of the UN policy is to build a healthy environment and facilitate world trade and the global economy.  IMO is committed to providing the institutional framework, which will lead the industry towards a green and sustainable international maritime transport system.    Do Read: IMO 2020- A Double Edge Gizmo for Woodside Petroleum and Caltex Australia     What is the future of the International Maritime Organization?  The International Maritime Organization was founded to provide necessary support and framework for smooth, safe, and efficient functioning of the shipping industry. It deals with all the technical matters which affect trade globally and bring robust practices in the industry. From the last few years, IMO's major priorities have included the control of marine pollution produced by the shipping industry.  Because of IMO's framework and healthy implementation, the oil pollution of the sea has reduced substantially. The collisions between ships have lowered in number too as IMO has released traffic separation guidelines.    Read Blog: The Approaching Deadline Of IMO Emission Standards Caught The Energy Investors’ Eye

What are Strategic Petroleum Reserves (SPR)? Strategic Petroleum Reserves are natural or human-made structures to hold huge stockpiles of crude oil or natural gas and are of national strategic importance for any import-dependent country. The volumes stored in SPRs may range from a few days to months consumption in any event of supply disruption. SPRs are constructed in underground natural caves or salt caverns. An abandoned oil or gas field is also used as storage and is economical as there exist reservoirs for hydrocarbons down below. Why is SPR in the energy security policy of many countries? Strategic Petroleum Reserves (SPR) is developed and maintained to ensure the supply of petroleum products in any event of supply disruption of crude oil or gas from the supplier country. It is a countermeasure which has been adopted by countries, that rely heavily on petroleum imports to meet their energy requirements. The supply disruption may arise due to Force Majeure A hurricane or a tornado may cause a halt in production as in case of offshore fields and production facilities. Earthquakes of high intensity can damage the group gathering facilities and other infrastructure. All these factors may impact the export potential of the company or country and can cause supply disruption. Conflicts or war OPEC countries produce 40% of the total world’s production of crude oil. The relation between the countries due to fight for market capture give rise to tensions and eventually may turn into conflicts. Even the sea route, Strait of Hormuz is a hot zone due to the presence of multiple countries protecting their energy security. Large volumes available in SPR may act as a tool to strategize and better position to absorb crude oil price shocks. Large inventories could be filled when prices are relatively lower and could be used when demand is on high side. Countries with large volumes available in their SPRs can also use it to rent out to  countries with relatively lower or nil SPRs. Energy security or frequent price fluctuations in crude oil prices may drive import dependent countries to seek for the services of those who have larger SPRs. Who holds most of the Global Strategic Petroleum Reserves? U.S.A holds the highest storage capacity of the crude oil for emergency supplies. It has four underground huge salt caverns along the Gulf Coast to store its contingency supplies. The authorised capacity of 714 million barrels of the SPR can be sold to the market only through the presidential orders. With current year’s consumption (2020) projection of 18.23 million barrels per day, U.S.A holds roughly 39 days of supply, which during emergencies can last for a longer period time.  China ranks second when it comes to the strategic storage capacity of crude oils. It has never disclosed its installed capacity but has planned to boost the SPRs for the emergency supply for up to 90 days. China has significantly increased its import of US crude during the first half of 2020. Based on the EIA report, China has 12 SPRs with a combined storage capacity of more than 300 million barrels of crude oil. With current consumption 13.91 of million barrels per day, the reserves could last more than 21 days. Japan, without any domestic production, depends on 100% on crude oil and natural gas imports despite being 5th largest consumer of petroleum products. The government maintains the strategic reserves while the private players maintain the commercial stockpile. As per the 2017 data, Japanese government holds 47.13 million kiloliters of crude oil which is sufficient for 126 days of domestic consumption. The government also maintains an inventory of LPG for 49 days of consumption. India imports nearly 90% of its crude oil from suppliers from all corners of the world. To mitigate the supply disruption, India has recently inaugurated three underground cave SPRs with a total installed capacity of 5.33 Metric Million Tonnes. In its next step towards energy security, India has started working to increase the number of SPRs and capacity by 6.5 Metric Million Tonnes. India has also inked a deal with U.S.A to store the strategic reserves in U.S.A. With the current consumption level of 4.04 million barrels per day, India’s current SPR will be enough for 9-10 days of domestic consumption. (September MOMR, OPEC data) Australia is the largest exporter of LNG in the world but has to import crude oil to cover its domestic consumption. As of July 2020, Australia has 63 days of estimated IEA day of net import coverage stocks. These are the stocks available to the refineries or held by private parties. Australian Government signed a deal with U.S.A to establish a first government owned strategic reserves for domestic fuel security. The deal is of A$ 94 million for the tenure of 10 years to store Australia’s crude in U.S.A stockpile.

Define Upstream In the oil & gas sector, all the activities which are related to exploration and production of oil and natural gas are termed as Upstream activities. The operations of Oil & Gas Industry include searching for subsurface O&G deposits to drill wells for production and then transporting the produced material to refineries to convert it to a usable form and finally make it available for end-users. The whole Oil & Gas process can be classified into three main categories which are known as Upstream, Midstream and Downstream. Image Source © Kalkine Group Upstream Process Upstream is referred to as “E&P” which means Exploration & Production. Exploration involves all the activities that are involved in search of specific subsurface areas where a petroleum reservoir is located. Whereas production involves all the processes involved in bringing the found subsurface deposit of oil & natural gas to the surface using drilling techniques.  The upstream operations consist of Acquisition, Exploration, Appraisal, Development, Production and Abandonment Image Source © Kalkine Group Acquisition The acquisition consists of various activities starting from the purchase of license blocks and searching for O&G deposits using multiple sophisticated techniques. Acquisition on acreage can be made by open tendering either by direct negotiation or by the farm-in process into an existing block.  Exploration After the acquisition of the O&G block, various extensive surveys like gravity, magnetic, seismic are conducted to delineate the subsurface deposits of hydrocarbon. The primary step in the exploration phase is Basin Assessment which is carried out to study the area of interest. An exploratory well is drilled to assess the geological details of that area. The companies use advance modelling techniques to prepare realistic basin models and to study the basin evolution. Based on available geological and geophysical survey data and results of the analysis made on that data, a decision is made either to move further with the lease or not. The fundamental objective of this phase is to evaluate the risk and to evaluate the volume of hydrocarbons present in the reservoir. Appraisal The main objective of appraisal stage is to assess the potential and extent of reservoir better. After completion of the exploratory phase, the reservoir engineers and geologists start planning appraisal activities. More wells are drilled to reduce the uncertainty of the evaluated volume of hydrocarbon. Expected Reservoir performance is evaluated and the production forecast for the field is prepared. Development After the completion of the Appraisal phase, the economic presence of hydrocarbon is confirmed or denied. If the field contains commercial deposits of hydrocarbon, a Field Development Plan (FDP) is prepared for the phased development of the field. The objective is to deplete the reservoir in most technically significant, safest end economical manner to get optimum Return on Investment (ROI). Appropriate locations for drilling various wells are drawn based on economics & survey results to start the production in a full-fledged manner. A proper assessment for LNG site is also conducted, which requires the construction of large scale export-import, storage and transportation facilities. Production After the completion of FDP, the field is developed, multiple wells are drilled, and production starts. The field starts producing from wells in a full-fledged manner. It is the first stage in the life-cycle of a field when the extracted hydrocarbon gives the first revenue from selling the O&G. When the revenue exceeds the investment that the company made during the initial phases, the company starts getting profit. This stage can last up to 45 years, depending on the potential of field and easiness to explore the reserves. After due course of time, the rate of production starts deteriorating due to the decline in reservoir pressure. Special EOR (Enhanced Oil Recovery) techniques like steam injection, water flooding is used to regain again the declined pressure of the reservoir which is commonly known as "Maintenance" phase to enhance the production rate. Finally, after producing the commercial hydrocarbons, the well is shut and abandoned.  Abandonment The gradual decrease in production rates due to the decline in reservoir pressure leads to non-economic recovery of reserves from the reservoir. When the field reaches its economic limit, the company decides to stop production from that field and abandon the operations from there. The producing wells are plugged & abandoned (P&A). The objective is to protect the future commercial zones and near freshwater zones from contamination.  Decommissioning of previously installed production facilities is done as they are no longer economical. The land under the facility is reconditioned, and environmental restoration is carried out.

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