LNG history and Introduction to Kryopak


Kryopak built 17 MMSCFD LNG plant.	Kryopak built 10 MMSCFD lng plant

Prepared by
Ken Kennedy
Chief Executive Officer

INTRODUCTION TO KRYOPAK

KRYOPAK had its beginning in 1976. KRYOPAK initially operated as a division of K. B. Kennedy Engineering Co., Inc. (A Missouri corporation organized in January 1961.) The following is a history of K. B. Kennedy Engineering Co., Inc. (Precursor of KRYOPAK Inc.).

1950's

INVENTIONS & PATENTS: A NEW LNG PLANT PROCESS.

In researching methods to improve this technology, Kennedy made an evaluation of an expander technology utilizing a Mollier Diagram as a reference point. It was obvious to develop a theoretical process utilizing expansion energy of natural gas, used in the lowest level of the cascade process. This process would to cover the full range covered by the three refrigerants. The first step studied air separation processes. The means to develop the cold refrigerant occurred next, since fractionation operations were not important. The equipment utilized then was a reciprocating expander.

NEW TURBINE EXPANDER TECHNOLOGY vs.
EXISTING RECIPROCATING EXPANDER
A commercially available reciprocating expander was not then available to handle the large quantities of gas required for the 100 MMscfd plant under consideration. Cooper Bessemer agreed to build such a machine but could not give the proper warranties. An evaluation of the largest machines in service showed a very high maintenance factor as methane has very little lubricating value. Having experience in hydraulic turbines and in steam turbines it was a logical step to explore centrifugal machines. All the turbine manufacturers were concerned with low temperature lubricating problems. Air bearings were not very well developed at that time. Theoretical benefits were evident.
1960's
K. B. KENNEDY ENGINEERING COMPANY, INC.:
MORE LNG PATENTS

At the close of 1960, K. B. Kennedy resigned from J. F. Pritchard Company and organized K. B. Kennedy Engineering Co., Inc. Several theoretical processes utilized steam turbine, non-condensing machine efficiencies. A search of the literature and discussions with equipment manufacturers led to Dr. Judson Swearingen who had published an article in "Chemical Engineering Progress" using an expander in air service. Swearingen was then with Southwest Research. Upon contacting Southwest Research they said he established his own company, RotoFlow, in Los Angeles. Several processes of hydrocarbon and liquefaction evolved from several telephone conversations and meetings. Dr. Swearingen felt our processes were patentable. We felt the cost of defense not justifiable. With our blessing, he filed three LNG patents from our technology and patents awarded.

1960's-1970's
K. B. KENNEDY ENG. Inc.; New Mexico;
MORE PATENTS; LNG PLANTS & GAS RESERVES

We operated throughout the 1960's as an engineering contractor and a mechanical contractor. Most of the gas companies east of the Rockies were our customers. We avoided consulting type contracts except for a couple of our friends like Distrigas. Throughout the sixties, we designed many LNG plants ranging from five million to one billion SCFD in size. We operated some of this time as the Light Hydrocarbon Division of Litwin Engineering. In 1970 we developed a nitrogen rejection process, filed for patents, and acquired substantial high nitrogen gas reserves in New Mexico. We transferred our offices from Kansas City to Roswell, New Mexico and built a nitrogen rejection pilot plant.

This evolved into a LNG plant and several cryogenic gas processing and nitrogen rejection plants.

Ken Kennedy ran K.B.. Kennedy Engineering Co. he built two LNG plants.
One in 1977-1982 in Hobbs, New Mexico, a 17 MMSCFD plant.
That ran several years before being shutdown and dismantled.

The second plant was built for Amoco Oil Co. in 1982, a 10 MMSCFD plant
that operated for about one year before being shutdown, dismantled and moved.

We had the first ASME Sec. VIII, Division 1, pressure-vessel code-shop in the state. We had our own pipeline construction and operating crew, a sizable engineering staff and were building plants for our own account with our own operating company, Capitan Energy. The shop incorporated as Kenweld. We entered a joint venture with SPS as Chala Cryogenics covering several plants.

1970's-1980's
KRYOPAK FORMS IN KANSAS: LNG PACKAGED PLANTS.

In 1976 we set up KRYOPAK, a division of K. B. Kennedy Engineering, and opened offices in Overland Park, Kansas to address the apparent need for LNG packaged plants. Our principal customer was Soquip, a Canadian government energy entity, with a need for packaged plants used to prove reservoirs test drilled in remote areas that needed six month's production to justify investment in additional drilling and pipeline extensions. We closed this office after two years and little activity.

In 1982 we entered into an agreement with Beech Aircraft, Alternative Energy Division, for design and construction of packaged LNG plants. At this time it was evident LPG and gas prices were falling quite rapidly. We opted to sell our plants and contracts and to concentrate on LNG package construction. We sold the White Ranch plant to Mapco and took a three year operating contract. In mid 1986 it became obvious Beech Aircraft was not going to sell any plants for LNG production. We opted to liquidate K. B. Kennedy Engineering with all technologies developed becoming the property of K. B. Kennedy.

1980's
JOINT VENTURE: KRYOPAK, INC. & SALOF REFRIGERATION.

Kennedy returned to the Kansas City area and set up a relationship with George Salof on a joint venture basis. It became obvious that LNG was the fuel of the future and why not now. Bids submitted to Bechtel eastern Division for a turnkey 10 MMscfd plant in Rhode Island, to Bechtel International for a barge mounted 15 MMscfd plant in Mozambique and to McClousky, former president of Distrigas, for a 10 MMscfd plant in New England with Canadian gas. None of these plants were built.

We submitted a bid to Burlington Northern for 15 MMscfd plant in Lincoln, Nebraska. We rebid the plant to build and operate on a throughput basis with a guaranteed take or pay. This occurred because of a proposed joint venture agreement with Linde, a Division of Union Carbide. It soon became obvious Burlington Northern Railway was not ready for a plant. Roy Adkins organized Cryogenic Fuels Inc. (CFI) after beech's abandonment of their Alternative Fuels Division. CFI, a fine organization put together by Roy, Bill Rutherford and Jack Shafer, approached us to continue the agreement we had with Beech with CFI. We agreed to do this. KRYOPAK and CFI entered into a sales agreement wherein they were to represent us in sales on a commission basis with a limited agency agreement, non-exclusive.

1980's-1990's
RANGE OF LNG PLANTS: US & WORLDWIDE

1990's
KRYOPAK, INC. & LNG VEHICLE FUEL USE in the UNITED STATES

The CFI organization broke up and reorganized with only two of the principal players remaining. Their organization has turned into a consulting group and our aims are no longer similar. Plants kept getting smaller and smaller down to a point where an expander technology was impractical. We do not believe it is in our interest to take consulting contracts and have repeatedly rejected offers from CFI to participate. We have pursued contracts on our own with good results. Approximately three months ago we decided to evaluate the LNG business in the states to determine why it was not booming. A summary of our findings follows later in this paper.

1990's - 2000 +

LNG technologies and systems are fully developed and demonstrated throughout the world. LNG is environmentally attractive and economically viable. Payouts of investment far exceed the norm. The markets are available and waiting for a logical conversion. Why then are we not forging ahead at a rapid pace and still involved in "proof of concept" proposals and budgets? Why are companies repeating the same projects repeatedly, "reinventing the wheel?" This authors first hand knowledge of the applications of LNG processing technology and a conception of necessary steps precipitated developing a business plan to circumvent and avoid delaying tactics now rampant in the industry: to get on with the application of LNG technology.

Osh

United Asia Oil and Kryopak
It is with great anticipation to incorporate Raphael Pumpelly's [Pumpelly History Here] United Asia Oil group in Asia together with previously mentioned locomotive groups.

In 1981 one of our engineers met with Mr. Pumpelly and began a mutual interest in natural gas fueled locomotive engines just beginning with Energy Conversions Inc. in Tacoma Washington and Northern States Power in Minnesota where our engineer lived.

By 1982 Burlington Northern Railroad became interested in the Northern States Power Companies dual fueled project and ten years later LNG locomotives were running coal from Wyoming into Minnesota. By 1990, Kryopak's interest in mining corporations grew to over 102 major North American corporations. We held a LNG Business Meeting in 1991 to explain why Kryopak's LNG is less than $0.20 per gallon.

In 1991, George Salof, Ken Kennedy and Charlie Bartholomew met with Mr. Pumpelly in his Los Angeles office.

Raphael Pumpelly's LNG vehicle fuel plant for a concession (1969-1997 largest undrilled structure in Asia) never materialized because lack of interest in Thailand's locomotive use and natural gas power generation from the property. However, his family's 130 year interests in Central Asia look more promising.

A dedicated locomotive project

We understand the abundance of natural gas, and interest in Asia for vehicle fuel.

An entire $500 million LNG locomotive project is guaranteed by combining, gas availability, U.A.0. investors, competent worldwide oil and gas operators in the group, appropriate returns on investment from railroads, and the efficiency of Kryopak's LNG plant.
This case is based on United Asia Oil operating control of gas volume (350 Bcf), pressure & composition over 10 years into a Kryopak LNG plant from a dedicated concession.

Our experience understanding both mining and locomotive needs together with numerous trips to corporate headquarters, and field locations, leave us with the opinion where gas availability (low priced) and unavailable diesel (or higher priced) exist, LNG will repay all costs.
Time for recovery of investment depends on variables such as fuel price differential (great in Asia), unit vehicle cost and delivery (all costs in) and profit to all parties involved. 5020 references generated for this Asian project alone say $2,000 US per hour will be saved by the Ministry of Rail on 200, MP1200-G switchers and 30, 3400 horsepower road locomotives from just one 120,000 gpd LNG plant.

Currently several very large banks are looking at the Asian proposal as are other institutional investors.

We were impressed with Asian official presentations here in the U.S. in June and think both mining and petroleum industries will benefit from this exposure.
We think railroads like the performance of the MP 1200 G switchers and the GM-EMD 40-2's.
It is also possible to incorporate LNG into the large mining equipment. Newmont in particular comes to mind, as they were the first mining company to set aside moneys for 2,000 horsepower LNG haul trucks. The first 1200 horsepower mining trucks were converted by United States Steel in 1967 on iron ore mines in Northern Minnesota.

It has always been Kryopak's intention to work LNG vehicle fuel with coordination in high fuel users.

Switcher Locomotives produce at the rate of four (4) per month.
Kryopak's LNG plant (120,000 gallons per day) will be up and running sixteen (16) months from project start in U.S. to production of LNG fuel.
GM-EMD dual fuel, diesel, and LNG (3400 horsepower) locomotives produced at the rate of two (2) per month.
Sixty four (64) switchers and thirty (30) road locomotives can be on location at start up of Kryopak LNG operations in sixteen (16) months.

Thirty-four (34) months after LNG plant startup, one hundred and thirty six (136) more switchers will be operating off the LNG plant, bringing locomotive operations total to 200 switchers and 30 road locomotives.

Provisions-
United Asia Oil dedicates three hundred and fifty billion cubic feet of gas to this sized locomotive project, at an agreeable gas purchase value: the railroad agrees to purchase the LNG, at an agreeable price.
A $500,000,000 USD project will proceed, funding arranged by us.

Currently, we have 40 Requests for Quotes out on Kryopak's LNG processes on 4 continents, several Islands, floating production storage off-loading platforms, barge platforms, and several Regasification LNG plants for the Largest LNG carriers- June 2003

CNG	Prepared by Charlie Bartholomew mailto:kryopak@qwest.net George Salof mailto:gsalof@salof.com

Osh June 2003
April 2008