3336 1st Avenue So
Minneapolis, MN 55408
612 823 8638
  Prepared by
Ken Kennedy
Chief Executive Officer

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First, we will briefly review the utilization of LNG in the US.
In the late 1950's liquefaction of natural gas and water transport was a viable option even with technology developed at that time.  Preliminary economic projections demonstrated LNG would make cheap gas available to the US industrial markets.  Volume reduction of more than 600 to 1 occurs with liquefaction.  Ocean transport was feasible on paper.  Economics improves further if refrigeration available from vaporizing the gas recovers in some industrial application.
Continental Oil recognized the possibilities and formed a joint venture with Union Stockyards of Chicago.  The venture became Constock.  Continental developed the basic technology through literature research.
This system noted in the 1950 edition of Perry's Chemical Engineering Handbook -- a cascade cycle employing three independent levels of refrigeration and refrigerants.  J. F. Pritchard Co. was selected from several engineering contractors bids solicitations.
The concept was to buy gas on the Gulf Coast, liquefy it, transport by water to Chicago, and vaporize it in the food processing industry.  The initial economics were very good.  FDA shot the concept down due to the fear of contaminating the food product.  No system of heat exchange could persuade FDA to reverse its earlier decision.  This is indicative of the attitude regarding LNG and the supposed hazards involved due to ignorance of systems involved and particularly of LNG itself.

Complete commercial application of LNG technology built under one roof from gas supply to the consumer.  The failure to obtain approval from FDA and the consequent loss of income by refrigeration recovery and the added expense of vaporizing the gas was enough to cause the faint hearted to withdraw from the venture.  Union Stockyards did so.  Refrigeration recovery was important to their business.  Natural gas was not their business.



Continental chose to go ahead.  Gas could be liquefied on the Gulf coast, transported to the east Coast by water, vaporized and put into the gas mains as cheap as pipelining.  This kept the operation going.  A new partner became a part and Constock Pritchard was born, overcoming the first hurdles.



A 17-year contract negotiated with the British Isles took 100 MMscfd equivalent of LNG in Liverpool.  Here again the venture faced a seemingly insurmountable problem.  The 1000 + Btu gas was not compatible with the existing British system.  A process developed by Bill Gains and patented by Pritchard reformed the gas with steam to 600 Btu's and introduced it into the pipeline.  The Pritchard Liquefaction Corporation formed.  The initial concept was to liquefy the gas at Lake Charles, LA and transport it by ship to England.
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Negotiations completed with Venezuela for gas at a very cheap price.
Constock Pritchard built Methane Pioneer, a converted liberty ship insulated with balsa.  On its maiden voyage the outer hull sprang a leak and wetted the balsa.  Methane Princess replaced this ship and performed well in service.
Venezuela had in the meantime raised its gas to a cost approaching US prices.  Gas was eventually purchased in Arzu and the project began.

As you can see, many problems developed throughout this pioneering effort.  All problems surmounted because the whole project was in the hands of one team.
This is United Asia's proposed approach to LNG for vehicle fuel.


LNG worldwide progressed quite rapidly.  In the US it forged ahead as primarily a peak shaving tool using domestic gas, then to base load terminals receiving foreign shipments.  Internationally LNG is primarily used for base load.  This permitted cheap or essentially valueless gas to be consumed in a part of the world where the gas had a value.  LNG became a world commodity.  Peak shaving use in the US was justified by two characteristics of the pipe line systems.  One, the inability of available connected wells to produce added pipeline capacity and the other, lack of pipeline capacity and or horsepower at peak periods.  The economic justification bases on differential price between firm gas rates and interruptible rates.  The controlling factor was what the end user paid and costs passed through the utility regulators.


San Diego Gas and electric performed considerable research and development of LNG technology for motor fuel, during the early years of LNG development.  Most all of us in the LNG business those days took a hard look at the LNG for this use.
The insurmountable problem was that LNG was not competitive with ten cents per gallon for gasoline and diesel production costs.
Data gathered by San Diego Gas and Electric and several research organizations became buried in-house and in reference works.
Environmental aspects were noted in these studies.
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IGT started the international conferences on LNG in 1967, known as LNG 1.
Each successive conference, held in various parts of the world, took the next number.
It was the purpose of these conferences to bring together advances in technology, economic factors and any items such as PVT relationships and physical properties of LNG.
These conferences addressed problems in processing, transportation, and storage and generated volumes of data.

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As noted earlier, LNG worldwide expanded at a rapid rate.
Sonatrac was formed.
Large oil companies became involved in LNG production and transportation.
Exxon and Shell got heavily involved.
Burma Oil and gas took a beating in four large super tankers.
The Japanese became heavily involved as consumers, constructors, and fabricators.
Some companies took large losses while others made substantial profits.
Due to our involvement with some of these companies, we will not address the particulars.
LNG during the years from 1970 through 1980 was a boon for some, a bane for others.  These were the years when LNG had a rapid expansion.



In the late 70's when oil shortages faced the nation and prices rose rapidly, it appeared it was time to dust off the earlier technologies in motor fuel.  The environmental regulations of 1975 supported this decision.
By the time we could reorganize our thinking and get some productive work started in this direction, natural gas prices had inflated at such a rapid rate that a sensible study in the states could not be pursued.
Natural gas, however, did find its way into the market place as a motor fuel.  Some containers were, indeed, crude such as the air bags on busses.  Compressed natural gas would increase the mileage over atmospheric balloons.  In spite of some crude applications made, engine technology could be demonstrated.
In developed countries, development progressed to diesel and gasoline engine conversions to CNG.
Ships transporting LNG utilized the boil off for fuel instead of re-liquefaction or venting.
Experiments conducted on airplanes, helicopters, trains, marine engines, and trucks.
Even some diesel and gasoline automobiles ran on CNG and LNG.
In spite of activity in these areas, no economic impact affected the gas industry or LNG facilities.


LNG was a natural for Japan and Hawaii.
The US had shot itself in the foot with the Jones Act of the 1800's and our representatives in Washington still refuse to remove or amend the act.  This precluded LNG from Alaska coming to the US.  Instead it goes to Japan, reloaded on Japanese tankers and sent back to Hawaii.

The Jones Act prohibits transport of materials and commodities from an American port to American ports by any ship not built in the US, manned by US crews.

We could transport LNG in the late sixties and the 1970's in Japanese built ships with Japanese crews for 60% the cost of American built and manned ships.  The normal rules of economics were not permitted to enter into the US energy structure.  Well intended, but misguided, legislation set the pattern.  Economics will always win out.



Since 1985, however, the picture has completely changed.  Engine technology has advanced rapidly and there are several international and domestic companies involved in research.  This time with an eye to the future markets of those engines.  Many utilities with LNG started conversions of some of their own equipment to LNG.  Initially the driving force was quite successful, some not so good.


Natural gas became artificially high-priced by the act of 1978.
Reduced markets for natural gas occurred during the following period as coal volumes escalated, due to mandates in large power plants.  The country became energy conscious.  Bonuses in the form of tax deductions placed on insulation, conservation, and alternate energy projects.  This further reduced markets for natural gas.
High price mandates for natural gas resulted and this encouraged more drilling.  Due to the rapid escalation in drilling, rigs became scarce and rates quadrupled, in some cases.  Deep gas, being uncontrolled, could almost demand any price the interstate pipeline companies would pay.  Nine-dollar gas was common in Oklahoma.
The price of oil rose as well.  Drilling for oil discovered then unknown deposits of gas.  The Madden & Table Rock deep units, the Red Desert Basin and others in Wyoming, to mention a few, which could produce 100 MMCFGD each but await markets for development.
By 1985, it became obvious that natural gas was facing a drastic slump in price and in use.  Then the bottom fell out.  Natural gas prices are lower now than they have been since 1979.  No new markets developed.
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1990-2000 +



Thus, the present position of natural gas will remain, in all probability, stable for many years unless further disturbed by future legislation.
Oil prices have to continue falling, even though in a declining reserve position. However, this decline cannot go below the cost of production.  The US government will not permit imported oil in for long at a cost below US production costs.  Regardless what happens in the OPEC countries, we will protect our own oil production interests.

This illustrates some problems the natural gas industry faces and some reasons natural gas is in surplus, probably remaining so for a very long period.  These large discovered reservoirs drilled with the anticipation of large profits, when drilling money easily attracted projects.  They drilled for gas and they found it.  These fields eventually will produce with a much lower rate of return than originally anticipated.  Some income over costs of operation is better than no income.
We can therefore project the cost of production for oil as compared to the present value of natural gas and strike a favorable economic projection for LNG verses' diesel

Again, I ask, 'Why isn't LNG moving at the rate it should?'
The answer is obvious. There are too many balls in the air and no one is coordinating the efforts.
To my knowledge, no client can contain all the essential parts of his investment from a single source of supply.
A consortium addresses each project by experts in particular fields and totally coordinated.

KRYOPAK -- United Asia Oil, Energy Conversions Incorporated, Boise Locomotive, Waukesha, CH-4, Salof Refrigeration, Carburetion and Turbo Systems, Inc., and AirFoyle USA prepares to address this problem: to cover all the facets of the business development.

June  2003