The Logistics of Natural Gas

The Logistics of Natural Gas

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0:00An American household is typically delivered  two physical goods as utilities. The first  
0:06is water—and the ability to turn on a tap and  reliably have fresh, clean water year round,  
0:11no matter recent precipitation is undoubtedly  impressive, but a water utility is typically  
0:16a fairly local service. Except in a few,  fascinating exceptions, water tends to be  
0:21gathered from a natural source, processed,  and delivered to households fairly nearby.  
0:26It’s a fairly intuitive, fairly straightforward  process that has been going on, in some form,  
0:31for hundreds, even thousands of years.  Natural gas, though—that’s a modern marvel.  
0:38The general rule, across the world, is that  natural gas production happens where people  
0:42are not. This is in part a happenstance of  geography, in part the consequence of an  
0:47aversion to proximity to production, but what it  means is that gas often has to travel hundreds,  
0:52if not thousands of miles to get to its end-user.  To get low-density, flammable gas across an entire  
0:59continent is far from easy, and it’s even harder  to do so profitably. Whereas gasoline and other  
1:05liquid fuels are dense enough that the cost of  transport to the end-user by truck is marginal  
1:10relative to the overall cost, the same is not  true for natural gas. Therefore, through time,  
1:16what has turned the previously worthless gas into  a profitable commodity was figuring out how to  
1:21make the transport economics work. And the answer  for that was pipelines—really, really long ones.  
1:29Taking the example of an end-user in  Basalt, Colorado, their town’s local  
1:33network hooks up to a larger transmission  pipeline that follows the area’s highway  
1:37down the valley until around here—under  this golf course, this dead-end offshoot  
1:42connects with the long-distance transmission  pipelines spanning across Colorado. Now,  
1:47the fact that this happens under a golf course  demonstrates something important—the pipeline  
1:51operator does not own the land through which the  pipeline passes. Rather, they own the right for  
1:57the pipeline to pass through others’ land—they  own an easement. When a pipeline is constructed,  
2:02the company negotiates with landowners to purchase  the easement or, if negotiations don’t go well,  
2:07acquires it through eminent domain. In exchange,  the landowner gets paid a lump sum, more of  
2:13less equivalent to the reduction in property  value caused by the new easement. After all,  
2:18the property value will be lower. Not only will  buyers be wary of living near a pipeline due to  
2:23the low but non-zero risk of an accident, but  easements also come with restrictions on what  
2:28one can do with the land. Typically, you can’t  build any buildings, you can’t plant any trees,  
2:33you really can only have pavement, grass, or  dirt. The operator needs to be able to access  
2:38the pipeline for maintenance and repair at any  time so they can’t have a permanent structure in  
2:43the way. And these easements are legally-binding  for eternity—they are baked in with a property’s  
2:48title, so buyers must still abide by the  restrictions agreed upon by the original seller. 
2:53Here, the adjacent housing development is laid  out in a way to avoid the largely-invisible  
2:58right-of-way, then on the other side of the  river the right-of-way slides between buildings,  
3:02barely even visible from a satellite view. But  as the hills start, the right-of-way takes its  
3:07more typical form—a 50-foot wide stretch  of land devoid of trees. And that lack of  
3:12trees originates, of course, from construction.  That process is fairly straightforward. First,  
3:18heavy machinery is used to dig a trench. Then,  sections of pipe are laid out next to the trench,  
3:24and a pipe-bending machine comes through to  bend the pipe to follow the topography. Next,  
3:29these shorter sections are welded together into  longer sections, and the welds are strictly  
3:33inspected—after all, structural integrity is  critically necessary to prevent an incident.  
3:39Once complete, they’ll place these long sections  in the trench on sandbags to prevent damage to  
3:43their protective coating, then soft, rock-free  dirt is placed to directly surround the pipe,  
3:48followed by the previously-removed dirt to  fill the rest of the trench. From there,  
3:52the crews test the pipe by filling it with  water and pressurizing it well beyond its normal  
3:56operating pressure, and that’s about it. Pipeline  construction is relatively straightforward and  
4:02moves relatively fast—under the right conditions,  crews can install upward of a mile of pipe a day,  
4:08often across quite remote environments.  But there is more to pipeline construction than  
4:14just constructing the pipe—after all, if you put  natural gas into a pipeline in Texas, it doesn’t  
4:20just magically flow to Colorado. That’s why  you need this—a compressor station. As the name  
4:26implies, these are the facilities that compress  the gas, and it’s this pressure that propels the  
4:31gas forward through the pipeline at a speed of  about 25 miles or 40 kilometers per hour. But  
4:37they’re also important for making the economics  work. An average household uses about 200 cubic  
4:42feet of natural gas a day. That’s a lot of volume  of gas—it’d fill up a 6-foot, or 2-meter cube,  
4:50or the volume of about ten fridges. The economics  of transporting this gas would never work if it  
4:56were done at its natural density. That’s why they  compress it—quite a lot, in fact, to between 500  
5:01and 1400 pounds per square inch, allowing a  pipeline to be used far more efficiently.  
5:07These compressor stations are also often  home to so-called “pig launchers,” which  
5:11are more humane than they sound. That’s because  these are what are referred to as pigs—devices  
5:17placed into the pipeline to perform some  function. Some pigs clean the pipeline,  
5:22whereas others are smart pigs fitted with sensors  to inspect it for any vulnerabilities. While less  
5:27relevant in natural gas pipelines, operators  will even use pigs to separate out two different  
5:32products moving through a pipeline—they might send  a batch of traditional vehicle fuel, then a pig,  
5:37then a batch of jet fuel, for example. And  wherever there’s a pig launcher there’s also a pig  
5:42catcher that’s able to remove the device from the  pipeline while still allowing product to flow.  
5:47Now, this pipeline eventually emerges from the  mountains into another golf course, this time  
5:51just south of the town of Eagle. From there it  connects to another pipeline—right continues east,  
5:57but left eventually dead-ends just a few  miles down the road. This is common, because  
6:02while one major category of customers for these  long-distance transmission pipelines is the local  
6:07utilities that distribute gas to local users,  the other big customers are large industrial  
6:12facilities that use so much natural gas that they  have a direct connection to the long-distance  
6:18pipelines. In this case, it’s a plant that turns  gypsum mined nearby into plaster drywall, and it's  
6:23energy-intensive enough that the facility operates  its own 6 megawatt natural gas power plant.  
6:29The rest of the pipeline, though, more or less  follows the path of route 6, then diverts south  
6:33over a set of hills before reconnecting with the  highway and ending up here—another compressor  
6:38station. Although, this compressor station isn’t  operated by Black Hills Energy like the pipeline  
6:43up until this point—it’s operated by Xcel Energy.  That’s because here, the pipeline’s ownership  
6:49changes, which is also abundantly common.  Pipelines in the US are highly regulated by  
6:56the Federal Energy Regulatory Commission and, as  part of that, interstate pipeline operators are  
7:01required to provide non-discriminatory open-access  to all qualified shippers. Effectively, they’re  
7:07not even allowed to provide preference to their  own product. FERC also regulates rates—Black Hills  
7:13Energy, for example, is allowed to charge $36.87  to reserve a dekatherm of pipeline capacity during  
7:19the winter, when demand is higher. That guarantees  capacity, then they’ll charge another 10 cents  
7:25per dekatherm for the actual transmission.  Alternately, shippers can pay just 94 cents  
7:30per dekatherm, with no capacity charge, for  “interruptible transportation,” where product  
7:34is shipped only if there is available capacity.  The fact that this system is open access is  
7:39ultimately how product can find its way through  the nation’s web of pipelines all the way from  
7:43where it’s produced. A shipper might pay a dozen  different companies for their transmission service  
7:48to get the gas from its origin. And in  the case of an end-user in Colorado,  
7:52it’s quite likely that the origin for  its gas is here—Texas’ Permian Basin.  
7:59There, the natural gas is extracted from the  ground and processed into its commodity form.  
8:03The area’s primary industry is the more  lucrative oil production, but natural gas  
8:08is often a byproduct of that. Still to this day,  many rigs burn off natural gas if they lack the  
8:13infrastructure to divert it for sale, but an  increasing number do capture both. But whether  
8:19extracted via combined or dedicated rigs, it is  often difficult to fluctuate production quickly  
8:24to match demand. And demand fluctuates wildly  considering so much of the use of the gas is for  
8:30heating. So that’s the role of these 400 different  natural gas storage sites dotted across America. 
8:36Some of these sites are just the very areas  where gas was previously extracted from—depleted  
8:41underground caverns. Once all of that original  gas is gathered, the giant Swiss-cheese holes  
8:46in the ground—sometimes spanning thousands of  acres—sit empty and that makes them ideal for  
8:51storage. They also already have existing wells,  existing extraction and injection methods,  
8:56and existing pipeline connections. Here, gas is  reinjected into the impermeable natural caverns  
9:01some 1,000 to 5,000 feet, or 300 to 1,500  meters below the ground, where the working  
9:07gas—the natural gas that is commodified—occupies  the upper part of the cavern and a cushion gas  
9:12maintains a pressure buffer at the bottom. Because  the depleted natural gas fields are established,  
9:17proven, and widespread, their geology and  infrastructure generally makes them the most  
9:21inexpensive and easiest way to store natural gas.  There is, however, another method that crept into  
9:27more use about a decade ago as the country  ramped up some storage capacity: Salt caverns,  
9:32which can quickly turn over storage since  they can accept a higher ratio of working  
9:37gas to cushion gas. Leaching out and creating salt  caverns is expensive, but because of their high  
9:42withdrawal and injection rate—which can cycle up  to 12 times per year—that cost can be justified.  
9:48This short withdrawal cycle is ideal for pumping  energy into power plants during peak periods,  
9:52and because more natural salt caverns are  found in the South and Gulf area, this is  
9:57where they’re increasingly being put to use.  The third type, similar to depleted oil fields  
10:02in structure, are drained aquifers. These share  the characteristics of being underground natural  
10:06storage areas, but because they were previously  stored water the surfaces can be permeable and  
10:11the caverns less explored. It’s more expensive  to transform aquifers into natural gas storage  
10:16so it’s primarily done in areas, like the  Midwest, where depleted oil fields are less  
10:20common. Furthermore, aquifers require up to  80 percent cushion gas, meaning the amount  
10:25of working gas they actually hold is far  less than something like a salt cavern,  
10:29making injection and withdrawal more difficult.  But not all the gas extracted in Texas,  
10:35or anywhere in the US for that matter, will even  be used in the US. Increasingly, gas is not only  
10:41transported across a continent, but across the  world. And to get to such far-flung markets,  
10:47it’s moved as a liquid, crossing oceans,  gulfs, seas, and straits in one of these.   
10:53This is a Q-Max class liquefied natural gas  carrier. There are 14 of them worldwide, and their  
10:58classification signals that they are the very  largest vessel capable of docking at Qatar’s LNG  
11:04terminals, making them the largest LNG carriers in  the world. But in terms of sheer capacity, these  
11:10are small in comparison to their conventional  oil tanker contemporaries. A Q-Max can carry  
11:15some 266,000 cubic meters of liquefied natural gas  whereas the world’s largest TI-class supertankers  
11:22can carry up to 450,000 cubic meters of oil. And  yet these conventional oil tankers, with their  
11:28superior storage, come at a fraction of the cost  of a LNG carrier, as the last TI-class supertanker  
11:34cost $82 million in 2003, while a Q-Max runs in  the $200 to $300 million range. While smaller,  
11:43more expensive to build, and more expensive to  maintain given the requirement of keeping natural  
11:47gas in a fluid state, experts believe there  will soon be more LNG tankers plodding across  
11:52the oceans than oil tankers. The reason as to why  has to do with some geography and some physics.  
11:59On a global scale, the demand for natural gas  is in places far from the supply. In 2023, these  
12:05three countries were the largest LNG importers in  the world, with China narrowly outpacing Japan.  
12:11For decades, these three countries have been  at the top of the list, with Japan the world’s  
12:15number one year in year out until 2021. And for  two of these three countries, total consumption  
12:22exactly matches or very nearly matches imports.  Put simply: Japan has very limited natural gas,  
12:29and South Korea has almost none. And while  China does have a strong domestic supply,  
12:34it cannot nearly keep pace with its own demand.  The difficulty is, most of the big suppliers are  
12:40far away and across oceans that make any sort  of pipeline project infeasible. So geography  
12:46has dictated if natural gas is to get from the  US or Qatar or Russia or Norway or Australia,  
12:52it’s likely going to be by ship.  But it’s physics that makes natural  
12:56gas cost competitive. For natural gas to enter  a liquid state, it needs to be cooled to and  
13:01kept at -260° Fahrenheit or -162° Celsius—which  is what makes LNG ships so expensive to build  
13:10and expensive to run. But it’s worth the trade  off because once cooled into a liquid, natural  
13:15gas shrinks to 1/600th of its previous volume.  While natural gas has been lobbied as a cleaner,  
13:21more efficient energy source by proponents,  it’s really this incredible transformation  
13:25from voluminous gas to energy dense liquid that  makes this energy source so remarkable, and now,  
13:31so important on a global scale. By keeping the  gas at -260 Fahrenheit, the common adage goes,  
13:37a beach ball’s worth of gas shrinks down to the  size of a ping pong ball. But that example lacks  
13:42scale. Phrased in another way, that a single  ship’s worth of LNG becomes 600 ship’s worth  
13:48of gas in its natural state, it becomes easier  to understand why LNG has skyrocketed in trade  
13:53volume decade after decade—even if it’s  incredibly expensive and labor intensive  
13:59to keep the stuff at such a cold temperature.  Before liquid natural gas can be loaded onto  
14:04an expensive boat, it needs to be cooled down  at an expensive liquefaction facility. At each  
14:09liquefaction facility there are what the industry  calls trains—where the gas is treated to remove  
14:14impurities, then progressively cooled to turn  raw gas into clean gas then clean gas into liquid  
14:19gas. At Sabine Pass in coastal Louisiana, the  oldest operational liquefaction terminal in the  
14:25US—as well as the largest—there are currently six  separate functional trains. The first five cost,  
14:31as estimated by Cheniere Energy which owns and  operates the facility, between $17.5 and $18.5  
14:37billion dollars to build, while the sixth added  later cost of about $2.5 billion. After trains,  
14:43the product is then stored, awaiting a ship.  At Sabine Pass, LNG is stored in five separate  
14:49tanks capable of holding an absurd 500 million  cubic meters worth of gas. Once a ship has been  
14:55positioned in a vessel berth—of which Sabine  Pass has three—and once the ship’s tanks have  
14:59been cleaned and prepared to take on the freezing  liquid, loading arms are then bolted onto the  
15:03ship and the filling process begins while crews  monitor ice build up on the adjoining pipes. If  
15:08the ship’s tanks have already been cooled, filling  will take up to about 15 hours. This process needs  
15:13to be fairly quick, as Chenaire reported that it  filled 423 cargoes in 2022, and 425 in 2023.   
15:21Once the liquid natural gas is on the move, it’s  now the job of tanker operators to monitor its  
15:25freezing cargo and minimize loss on account of  off-boiling. There are two main categories of  
15:30LNG tankers—those with independent tanks, like the  recognizable Moss-style with its spherical tanks,  
15:35and those with the less distinguishable integral  tank—where the tank functions as a part of the  
15:40hull. The former is older, deals with less  sloshing—a danger that can damage tanks or  
15:45increase boil-off inside the tank—and is reliably  safe on account of the tank’s isolation from the  
15:49hull. The latter is capable of carrying far more  and because of this are becoming more prevalent,  
15:54and are reliably safe on account of the tank’s  pliability should the hull be struck. But both  
15:59rely less on continuously cooling their product  than just keeping it cold in the first place,  
16:03as both tank structures are maximally insulated  with more than 20 centimeters of foam and multiple  
16:08barriers surrounding the tanks. Still, some  boil-off is bound to occur, but rather smartly,  
16:14that’s what powers the boat. And should the tank  experience too much boil-off, there are systems  
16:19in place to slow the process, whether by running  gas back through reliquification, or by cooling  
16:24the tank by spraying liquid from the bottom of  the tank in the gap at the top. Keeping an eye on  
16:29all this is a crew of about 20-29 members,  with at least one cargo engineer focused on the  
16:34composition of gas within the tanks specifically.  Upon reaching its port of call, the process is  
16:38effectively reversed, in a similarly labor  and infrastructure intensive process with  
16:43regasification equipment in place of trains.  Ultimately, for as dispersed as users of natural  
16:49gas are, and diverse as the uses of natural  gas are, the process of making, moving, and  
16:53regassing LNG is remarkably confined. Across the  world’s two largest LNG producers, LNG exporting  
17:00is confined to only seven active locations—6 in  the US and just one in Qatar. And as for imports,  
17:07Japan with the longest history of LNG reliance  is home to around just 30 regasification plants. 
17:14But like all fossil fuels, demand for natural  gas is expected to soon peak. New buildings are  
17:19increasingly being built with heat pumps, electric  water heaters, induction stovetops, and other  
17:24cleaner, more efficient electric alternatives.  In fact, already, in New York City, for example,  
17:29certain new buildings are banned from adding  natural gas hookups. So this incredible network  
17:34of pipelines and tankers will grow increasingly  irrelevant in the coming decades. For now, though,  
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