NATURAL GAS STORAGE IN ASIA LE STOCKAGE DU GAZ NATUREL EN ASIE 1. Introduction 1.1. Supply and Demand of Natural Gas in Japan Energy demands are still slightly increasing in Japan in spite of economic recession since the collapse of bubble economy in the 1990s. Shown in Figure-1 is Japanese energy consumption in 2000. Use of oil (51.6%) still ranks first on a list, followed by coal (17.9%), natural gas (13.1%) and nuclear energy (12.4%). Projections for the next 10 to 20 years, however, indicate the greatest increase in consumption of energy from natural gas. There are mainly three reasons for this; i.e., (i) clean-burning natural gas is the fuel most likely to restrict carbon dioxide emissions and hence preserve the environment, (ii) having multiple supply sources of natural gas is favorable to the nation s energy security, while more than 85% of oil is imported from Middle East, and (iii) the safety of nuclear plants has come into question. Nuclear 12.4% Others 5.0% Natural Gas 13.1% Oil 51.6% Coal 17.9% Figure-1 Energy Consumption in Japan (2000) Japan consumed 78.7 x 10 9 m 3 of natural gas in 2001, 97% of which were imported as liquefied natural gas (LNG) from Southeast Asia, Oceania and Middle East as summarized in Figure-2. Normally, LNG imported is vaporized at LNG terminals located in main industrialized districts all over Japan, and then transported to users. LNG tanks in the terminals are also used for the purpose of stockpile. As the demand for natural gas rises, the amount of LNG import will increase. Therefore, expanding the
existing LNG terminals and/or constructing new ones are essential in future. On the other hand, domestic production of natural gas in 2001 was recorded at 2.5 x 10 9 m 3, or 3% of total consumption. Although this figure is relatively small, a role of domestic gas sources in Japanese energy security policy cannot be ignored. 9 2 11 34 11 13 20 Indonesia Malaysia Australia Brunei Qatar UAE USA Figure-2 LNG imported to Japan (2001) 1.2. Deregulation and Liberalization It is widely recognized that Japanese industries have suffered from the highest gas price level in the world. As mentioned above, most of natural gas used in Japan is imported in the form of LNG. Thus, Japanese gas suppliers had to make investments in LNG terminals and sometimes in LNG tankers, which then raised the gas price. Besides, mainly from a viewpoint of stable supply, they, in many cases, made long-term contracts with gas producers, resulting in a lack of flexibility in a market. However, the situation is changing. LNG facilities and transport costs are falling dramatically, which will impact LNG pricing in Japan as well as the nature and duration of supply contracts. In addition, like USA and EU experienced in the past decade, Japan is undergoing public debates about liberalizing gas and electricity sectors over the next decade. A purpose of this is to increase competition and decrease the price. Success of this type of deregulation will also accelerate growth of the gas demand. 1.3. Role of Underground Gas Storage (UGS) in Japan In Japan, nearly 40 oil and gas reservoirs that have been already, or almost, depleted after years of production are counted as candidates for underground gas storage (UGS) with total storage capacity of 26.5 x 10 9 m 3. At present, Japanese gas producers, including Teikoku Oil, operate only 5 fields out of them for the storage purpose; i.e., Nakajo, Shiunji, Kumoide, Katagai and Sekihara fields in
Niigata Prefecture. Purposes of these UGS are (i) peak shaving to meet seasonal fluctuation of demand and (ii) emergency stockpile. Working gas volume available in these UGS fields is reported at approximately 1.2 x 10 9 m 3 in total. Although the current UGS in Japan is operated on such a limited scale, the increasing demand for natural gas may require the expansion of UGS application provided infrastructure for gas transportation is well developed. The following discussion starts with focusing on Japanese UGS, the present and the future. 2. Current UGS in Teikoku Oil 2.1. Minami-Nagaoka Gas Field Teikoku Oil operates one of the largest gas fields in Japan, Minami-Nagaoka gas field, being located 10 km southwest from Nagaoka, Niigata Prefecture (Figure-3). It was discovered in 1979 and cumulative gas production as of the end of 2002 reached to 6.0 x 10 9 m 3. Annual production is at a level of 600 x 10 6 m 3, which is increasing year after year with the expanding demand for natural gas in Japan. Its reservoir mainly consists of igneous rocks at 4,000 to 5,000 m depth, where both pressure and temperature are extremely high; i.e., 56 x 10 6 Pa and 176 deg. C at a datum depth of 4,400 m. Besides, from a reservoir-engineering point of view, the formation is noted for its heterogeneity and low permeability. Thus, developing this gas field efficiently and, hence, economically is very much challenging. Minami-Nagaoka gas field is a primary cash engine for Teikoku Oil because of its huge proven reserves. Therefore, creating a stable and flexible gas supply system to areas of demand is of the most importance. Based upon this strategy, Teikoku Oil has already established an effective infrastructure as shown in Figure-3. Namely, the pipeline network connects Niigata, the supply side, directly to Tokyo area, the biggest demand side. Total length of the trunk lines exceeded 1,100 km as of the end of 2002. Extending new lines (shown with dashed lines in Figure-3) is also scheduled within the next 5 years, which will complete Teikoku Oil s pipeline network. In addition, for the purpose of stable supply of natural gas from Minami-Nagaoka, UGS facilities at Sekihara gas field was reinforced in 2001, which is introduced below. 2.2. First UGS in Japan - Sekihara Gas Field Teikoku Oil established, for the first time in Japan in 1969, the UGS system in Sekihara gas field. It is located a few km north to Minami-Nagaoka gas field (Figure-3). Sekihara had produced 310 x 10 6 m 3 of natural gas before depletion. Then, it was converted to gas storage. Peak shaving and stockpile for Minami-Nagaoka operation are purposes of this UGS. The storage formation at 1,000 m depth consists of pyroclastic sandstone and andesitic agglomerate, in which micro-fractures are well
developed. Permeability of these rocks is so high that the specified deliverability can be sustained. This is Sekihara s distinctive feature as a UGS field. Needless to say, pressure data obtained through a production period (1962-1967) has given a better estimation of its storage capacity. At present, natural gas produced from Minami-Nagaoka of 140 x 10 6 m 3 is stored in Sekihara, out of which working gas volume is evaluated at 80 x 10 6 m 3. Sekihara UGS Kubiki Field ANGAS? Figure-3 Teikoku Oil s Minami-Nagaoka Gas Field and Pipeline Network
As mentioned earlier, demand for natural gas from Minami-Nagaoka is increasing. Teikoku Oil is implementing a series of projects for upsizing its production capability, aiming at a target annual gas production of 1 x 10 9 m 3. As part of this reinforcement, total deliverability from Sekihara UGS was upgraded to 1.6 x 10 6 m 3 /D by adding two injection/withdrawal wells in 2001. Large diameter (4.1/2 OD) tubing was set in these wells so as to ensure a maximum withdrawal rate of 500 x 10 3 m 3 /D/each well. The field has now 5 active injection/withdrawal wells. Teikoku Oil also developed a UGS simulator in order to evaluate reservoir performance. In a design of UGS, it is essential to grasp volume of cushion gas required for attaining the specified deliverability. Sekihara is a gas reservoir with strong water drive. Thus, movement of water from and into the aquifer has a large influence on UGS performance. The UGS simulator is used to understand such complicated performance in the reservoir during withdrawal and injection, upon which a future plan of Sekihara UGS is determined. At the moment, as measures to reinforce the storage capacity, Teikoku Oil is investigating feasibility of gas storage under a pressure higher than the initial reservoir condition. Another example of utilization of the simulator is to estimate changes in heating value when two gases from different sources are mixed, which is discussed below. 2.3. Heating Value at Withdrawal A Problem of UGS Some customers of Teikoku Oil such as chemical factories, when receiving Minami-Nagaoka natural gas, do not allow changes in its heating value. Thus, gas supply contracts between Teikoku Oil and these customers have to specify the heating value of gas that they will receive; i.e., 43.2 x 10 6 J/m 3. This figure is the average heating value of Minami-Nagaoka natural gas. There should be no problem unless any gas from other source(s) is mixed. This occurs, however, when Minami-Nagaoka gas is withdrawn from Sekihara UGS. The heating value of Sekihara s original gas is 39.7 x 10 6 J/m 3, or more methane-rich. As a result, when these two are mixed in the reservoir, the heating value at withdrawal becomes less than that at injection; i.e., 41.1 x 10 6 J/m 3. In order to solve this problem, Teikoku Oil adjusts the heating value of gas from Sekihara UGS to the specified value in the contract by adding LPG at the surface, although it raises the operation cost to some extent. At the moment in Japan, it is generally a role of gas suppliers to distribute gas, whichever domestic gas or imported LNG, with a constant, or almost constant, heating value to satisfy customers requirement. If this situation continues, it should be an obstruction to third party access (TPA) for gas pipelines in future because different gases from different sources will be mixed when the pipelines are open, resulting in changes in the heating value. In other words, to make the TPA system fulfill its function and, consequently, accelerate the liberalization of gas market, the demand side will have to accept some variations in heating value of supplied gas. Introduction of so called calorie band that will define a range of heating value in a given pipeline will be necessary. Unfortunately, the importance of
this idea has not yet fully been recognized in Japan. 3. Evolution of UGS in Japan 3.1. For Seasonal Injection and Withdrawal Sekihara UGS is a sole UGS system operated by Teikoku Oil at present. On the other hand, as explained above, the demand for Minami-Nagaoka natural gas is increasing year by year. To prepare more UGS systems elsewhere along the pipeline network, therefore, will be necessary so as to meet the seasonal fluctuation of gas demand in the near future. Based upon this prospect, Teikoku Oil is now conducting a feasibility study on converting some depleted oil and gas reservoirs in Niigata Prefecture to UGS. Kubiki field, which was abandoned in 2001 after producing 4.2 x 10 9 m 3 of natural gas, is one of the most promising candidates (Figure-3). Low productivity of the formation seems to be almost the only problem in this field. Application of hydraulic fracturing in conjunction with horizontal drilling is considered as effective measures against this problem. Once Kubiki UGS is established, expanding the existing Minami-Nagaoka production facilities including upsizing of the trunk line can be minimized. As mentioned earlier, there are about 40 oil and gas reservoirs in Japan that could be converted to UGS. Total storage capacity is estimated at approximately 26.5 x 10 9 m 3. This figure is almost equivalent for Japanese gas consumption for 4 months - not so small volume! Unfortunately, however, it is very difficult at least at the moment to take full advantage of this. The biggest problem is that many of these reservoirs are located far from areas of demand such as Tokyo and Osaka, and that they are not inter-connected by pipelines. In other words, a lack of the infrastructure for gas transportation is an obstacle to the UGS development in Japan. Note that Sekihara and Kubiki fields of Teikoku Oil are a few exceptions. In planning a new UGS in Japan, therefore, to establish a pipeline network should come first before converting these candidate reservoirs to storage. Otherwise, at most a few UGS would be operated for some very limited local markets. 3.2. For Short Duration Deliverability Enhancement In general, UGS in depleted oil and gas reservoirs are appropriate for seasonal peak shaving because of their large storage capacities. On the contrary, limited deliverability constrains their use for meeting a needle peak where a large amount of gas has to be withdrawn in a short period of time. To overcome this problem, UGS in salt caverns is often utilized in Europe and North America. It is also the preferred option for merchant storage because it allows frequent cycling with high rates of injection and withdrawal. As the demand for natural gas increases, this type of UGS will be necessary even in Japan. Unfortunately, however, there are no salt layers or salt domes found in Japan. As an alternative, an idea to construct lined rock caverns along a pipeline network is under investigation by JGA (Japan Gas
Association) with the support from Teikoku Oil. This concept, called Artificial New Gas Storage (ANGAS), is that natural gas be stored under a high pressure in artificial lined caverns created in a rock formation at 100 m depth or deeper. For example, for Teikoku Oil, it would be desirable to have such ANGAS system at downstream of its pipeline network, if practical. The nearer to the areas of demand is it situated, the better (Figure-3). A scale of storage expected at the moment may range 60 to 600 x 10 3 m 3, with a high storage pressure; e.g., 8 x 10 6 Pa. A rock formation around one of the candidate areas is well known to be soft. Thus, establishing methodology to sustain stability of a cavern in such a soft formation is one of the important technical issues. A pilot test to prove feasibility of the idea of ANGAS is of essence as the next step. 3.3. UGS or LNG Storage Tanks? As mentioned earlier, 97% of natural gas consumed in Japan is imported in the form of LNG. Thus, as the demand for natural gas increases, constructing new LNG terminals with many storage tanks, as well as the expansion of the existing facilities, will be necessary in future. However, it becomes more and more difficult to find enough lands for them at, or even around the demand areas. Consequently, new LNG terminals have to move away from the urban areas. Then, pipelines between the new terminals and the demand side are to be installed, which will raise the cost borne by gas suppliers. On the other hand, depleted fields themselves are less expensive to develop because existing production wells and other facilities can be converted for storage use. The only thing to be added is a pipeline connecting these storage fields to the LNG terminals. Therefore, it is worthwhile to consider full utilization of the domestic depleted oil and gas fields for a LNG storage purpose. JNOC (Japan National Oil Corporation) and its study group compared, under many conditions, a cost for (i) UGS system a combination of UGS and pipelines, with that for (ii) existing system new LNG terminals with storage tanks and pipelines. According to their report, in some cases, total cost for the UGS system could be competitive with that for the existing system. Namely, provided the infrastructure is well established, UGS could be one of the practical options for LNG storage so as to meet the increasing demand of natural gas in Japan. However, establishing the infrastructure - constructing pipelines requires a huge amount of initial investment. What on earth can be a driving force for it? This is still a big question. Instead, a unique idea that LNG tankers be regarded as pipelines connecting the depleted fields with the LNG terminals is introduced in the said report, which might be a better and more practical option. 3.4. Underground CO 2 Sequestration Carbon dioxide, a greenhouse gas, is produced as a by-product in many industrial processes,
usually in combination with other gases. If CO 2 can be separated from the other gases, it can be stored in the oceans or underground rather than released to the atmosphere. The use of depleted oil and gas reservoirs for CO 2 storage has such advantages as: (i) disposal takes place in the well known geological structure where formation seals can contain CO 2, and (ii) technologies obtained and experiences accumulated through UGS and/or EOR (Enhanced Oil Recovery) projects, which are not uncommon in the oil and gas industry, can be directly applied. Teikoku Oil is a member of a national research project on underground storage of CO 2 led by RITE (Research Institute of Innovated Technology of Earth) and SEC (Safety and Environment Center of Petroleum Development). A pilot test to inject and store 15,000 tons of CO 2 into an aquifer formation at 1,000 m depth will start in June 2003. For this purpose, one injection and three observation wells have already been drilled and completed in Minami-Nagaoka gas field. The pilot test will continue for 2 years, during which movement of CO 2 in the aquifer is to be monitored by both wireline logging at the observation wells and inter-well geo-tomography. Then, the UGS simulator will be used to analyze performance of the aquifer as CO 2 sequestration. The environmental implications of the sequestration will also be investigated. At present, it is very difficult to schedule an underground CO 2 sequestration project at a commercial-scale. Separation of CO 2 from other gases is still expensive. Transportation of the separated CO 2 from a gas source, usually a power plant, to a site of storage also costs a lot. Therefore, some political incentive has to be given so that the CO 2 storage can be regarded as a potential business model. If it is the case, underground CO 2 sequestration may become a typical application of UGS in Japan in future. 4. Evolution of UGS in Asia 4.1. Natural Gas Supply from Sakhalin For Japan, compared to the case of oil, there are several sources of natural gas such as Southeast Asia, Oceania and Middle East, which is suitable to the national energy security. This situation will dramatically be improved when natural gas supply from Sakhalin is carried out. In the Russian Far East, just north of the Japanese island of Hokkaido, lies Sakhalin Island. To the East of Sakhalin, just offshore in the Okhotsk Sea, lie a number of large oil and gas fields that are about to be developed (Figure-4). The biggest advantage of developing these fields for Japan is that natural gas can be directly imported from Sakhalin through a pipeline. Japan Sakhalin Pipeline FS Co., Ltd., conducted a feasibility study on the pipeline route together with ExxonMobil. Two routes are under investigation; i.e., the Pacific Ocean route and the Japan Sea route. Whichever route may be chosen, it will be the first international gas pipeline to Japan.
The Sakhalin pipeline will bring a considerably positive impact on the natural gas market in Japan. Firstly, utility companies will build their power plants, along the Sakhalin line, equipped with combined-cycle generators, as is the case in EU and USA. This movement will not only accelerate utilization of natural gas but also contribute to reduction of CO 2 emissions. Secondly, many branch lines will be constructed and connected to the Sakhalin line, developing into a pipeline network. This can be used as the infrastructure required for the liberalization of the market. Finally, UGS along the Sakhalin line will play an important role for the stable supply of natural gas, especially in case that the Japan Sea rout is selected. Merchant storage may also be widespread. However, in this project, too, a driving force to justify a huge amount of initial investment is vital. There is another idea that natural gas from Sakhalin be supplied to China and Korean Peninsula by laying gas pipelines on the Continent (Figure-4). In this case, almost the same scenario as the one in Japan s case can be written. Namely, once the international pipeline network is established, the gas business including UGS will, without doubt, expand in this region; i.e., Far East Asia. Especially, China is seeking more and more natural gas with its incredibly rapid growth of economy, which is a final topic of this paper and discussed below. Kovitkinskoye Sakhalin Karla Beijin Seoul Tokyo Shanghai LNG Figure-4 Evolution of Natural Gas Use in Far East Asia
4.2. China s Dash for Gas In China, in the past, the proportion of energy derived from coal had ranked first (70%), followed by that from oil (28%). However, at present, China moves to cut the use of coal so as to reduce emissions of CO 2 and improve its air quality. On the other hand, China is the world s third largest oil consumer, behind USA and Japan, and is expected to surpass Japan within the next decade. It has been a net oil importer since the early 1990s, and its reliance on imports is expected to increase, on which the Chinese government intends to put a ceiling from a viewpoint of the national energy security. Under these circumstances, since the late 1990s, China s attention has been focused on the use of natural gas. Its natural gas consumption is forecasted to increase by 10%/year over the next 20 years. China is, therefore, now making every effort to assure as many sources of natural gas as possible. Recently, the world s attention has been paid to China s challenging project to transport gas from the west and center of the country to the markets in the east through a 4,000-km pipeline with a capacity of around 30 x 10 6 m 3 /D. Namely, a gigantic gas field in the Tarim Basin in Xinjian Province, in the extreme west of the country, whose proven OGIP (Original Gas In Place) is reported at 505 x 10 9 m 3, will be connected with the world s largest city, Shanghai (Figure-4). This gas production and pipeline project is estimated to cost US$ 14 x 10 9. China will also import gas by pipelines from Russia and Central Asian countries. Feasibility studies are in progress to schedule a gas pipeline from the Kovitkinskoye field near Irkutsk in eastern Russia to the Beijing area, with a possible extension to South Korea. There is the idea of natural gas supply from Sakhalin, which has already described earlier. In addition, China has already contracted to import LNG to Guangdong and Fujian Province. As summarized above, China is looking for multiple sources of natural gas. Many pipeline projects are in progress, or under investigation. Once these pipelines develop into a network, it will allow other gas fields along the route to access the eastern markets. This will then reduce a gas price and, consequently, promote the demand of natural gas more and more. It is at this stage that UGS will become necessary in China for the purpose of stable supply by peak shaving and stockpile. China is a vast country. Hence, its UGS market can be an enormous one. 5. Before UGS Evolution As emphasized repeatedly in this paper, once the pipeline network is completed, the demand of natural gas will expand. Then, evolution of UGS will be inevitable for the stable supply, wherever it may be Japan or Far East Asia. The reality is, however, there are still so many steps to go up before UGS evolution. In concluding this paper, shown below is the author s opinion regarding the current situation in Japan.
The electricity and gas prices in Japan are still at the highest level in the world. This is one of the reasons for many Japanese industries losing an international competitive power. As one of the effective solutions against this difficulty, Japan is undergoing the liberalization of the electricity and gas markets by promoting competition through a series of deregulations. A goal of this movement is, needless to say, to reduce the prices at the user side. Although the idea itself is true, however, there seems to be a fundamental problem in a process of execution with regard to the gas liberalization. In Europe and North America, the gas pipeline network had been well established throughout the country at an early stage, which accelerated growth of a gas market. Then, the market was liberalized. As a result, the liberalization has been smoothly scheduled and implemented. On the contrary, in Japan, the liberalization of its gas market, including TPA, has been scheduled without having any web of pipelines among gas suppliers. This increases a risk of making investment in new pipeline construction. If Japan s gas industry hesitates to do it, then the natural gas demand may not expand as expected, and, at last, the liberalization system may fail to function. In order to avoid such situation, establishing the pipeline network should be considered as the first step, as was the case in EU and USA. In addition, some political incentive should be given in the system so that a large scale of investment for the pipeline construction can be justified.