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Liquefied Natural Gas

Then there's the cold stuff, LNG.

The global market for natural gas is expanding almost as rapidly as the product does when it's not kept refrigerated. Driving the LNG industry are the growing preference for clean energy (gas is far cleaner than oil and far, far cleaner than the cleanest coal), the discovery of huge volumes of natural gas during the past decade, and new technology that cuts the cost of turning gas from a well into LNG and moving it from producer to user.

LNG has been around for a long time. The first patent was filed in 1914, and commercial production began three years later. The steps are: Purify the gas coming out of the ground to at least 90 percent methane. Reduce the temperature of the purified gas to minus 265°F, at which point it condenses to a liquid with just 1/600th the volume of the original gas. Then do something with it—which today means putting it on a ship heading toward a market that pipelines alone can't reach.

Liquefying flammable gas on an industrial scale is a hazardous process, and it consumes a lot of energy (equal to about 35 to 50 percent of the gas's energy value). Building a facility to do the job safely and efficiently is expensive—the bill for a terminal being built in Louisiana, for example, is approaching $10 billion. LNG is not an industry for small players.

Storing the finished product requires cryogenic tanks, which also are expensive. So most LNG isn't stored for long. It's moved, first by ship and then, when the ship reaches port, through a plant that gently warms and regasifies the product and sends it to users by pipeline.

LNG progressed from a big idea in 1914 to a big and fast-growing industry today because of technologies developed early in this century. The new methods cut the cost of building plants to produce LNG, terminals to receive and regasify it, and the specialized ships needed to move LNG between the two.

In 1990, global production capacity was 50 million tonnes (metric tons) per year. In 2013, it was five times that. Even with that growth, the industry still isn't mature. Only 19 countries currently are exporting LNG, and only 17 countries have facilities to receive it. Japan is by far the biggest importer, especially after the Fukushima disaster paralyzed its nuclear power industry. In 2013, the country imported 88 million metric tons of LNG, about a third of world production. South Korea is the second-biggest buyer.

Putin sees Russia playing a big role in this growing market, especially with so much demand for gas from areas in Asia that can't be reached economically with pipelines alone. To help speed things along, he has enticed international and domestic investors with tax incentives for LNG production and development.

There's already an LNG plant that condenses gas from the Sakhalin II project into 10 million tonnes of LNG per year, for sale to China, Japan, and South Korea. Putin aims to add 60 million tonnes of LNG capacity by 2020, starting with plants in the Primorye Territory and the Leningrad region.

The Shtokman Giant

Waiting in the far north is the behemoth offshore Shtokman field, owned 75 percent by Gazprom and 25 percent by France's Total S.A. It holds an estimated 137 Tcf of natural gas, making it one of the largest gas fields in the world.

The gas would move via a 600-kilometer undersea pipeline to south of Murmansk and then into Nord Stream. Some of it could go to feed an LNG plant proposed for the village of Teriberka, about 100 kilometers northeast of Murmansk.

Shtokman would be a major challenge to develop. Norway's Statoil was a 24 percent partner at one time, but in 2012 got cold feet, so to speak, and handed its shares back to Gazprom. The deposit lies 550 kilometers offshore, beneath the Barents Sea, in a neighborhood where conditions are as cold, icy, windy, and rough as they get. Because of the hostile environment, development costs could top $40 billion, so for now Shtokman is on hold, where it likely will remain until the price of gas in Europe rises above $12 per MMBtu.

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