February 14, 2019
Jim McCaul — IMA/World Energy Reports has just completed a twelve month detailed assessment of the floating liquefaction and regasification market. The 150+ page study examines future market opportunities in floating liquefaction and regasification, systematically assesses the universe of FLNG and FSRU projects in the planning stage and assigns to each project a probability of clearing the development investment hurdle. An accompanying online database updates all FLNG and FSRU projects on a 24/7 basis. Some highlights from the study are provided below.
Role of Floating LNG Plants (FLNGs) — Global demand for natural gas is expected to grow at an annual rate of 1.5 to 2% over the next 25 years — driven by the economic and environmental advantages of natural gas as feed for heat and power production.
Much of future gas demand growth will be in locations where gas delivery by pipeline is either uneconomic or impracticable. These locations, primarily in Asia and Europe, will produce a growing requirement for natural gas in refrigerated liquid form — which will generate demand for additional LNG production capacity.
LNG liquefaction has historically been a land-based activity. Until three years ago production of LNG took place entirely in land based plants. But floating LNG plants have advantages over land-based alternatives in certain situations — and FLNGs now account for around 3% of LNG plant capacity in service or scheduled to be operational within the next two years.
FLNGs positioned offshore on a gas reservoir eliminate the need for subsea pipeline to a shore-based LNG plant. Liquefied gas can be produced on the FLNG and directly transferred to an LNG carrier for global delivery. Also, an FLNG does not occupy valuable land space, avoids some time consuming land permitting requirements and the production unit can be relocated when the reservoir is no longer economical to produce.
In general, floating plants tend to be most competitive as the development solution in projects (1) distant from shore, (2) on smaller reservoirs, (3) with difficult flow characteristics and (4) where no existing land plant is within tie back distance. But land and floating plant solutions each have merits and demerits — and the specific circumstances of the planned liquefaction project will determine the optimum development solution.
FLNGs in Service or on Order —Four FLNGs have been completed. Three are in service (Prelude, PFLNG Satu, Hilli Episeyo) and one (Tango) is in transit to the production site. Three more FLNGs are on order (Coral South, PFLNG Dua and Gimi).
The range of FLNG designs and plant capability is quite diverse. Shell’s 488×74 meter Prelude, has 5.3 mtpa LNG/LPG/condensate production capability. It began operation off Australia in December 2018. Prelude has the distinction of being the most expensive vessel (of any type) ever built. Gimi, a 40 year old LNG carrier being converted by Golar to a 2.5 mtpa FLNG, is the first of several FLNGs to be used by BP to develop deepwater gas/oil discoveries offshore Mauritania/Senegal. It is similar to the Hilli Episeyo FLNG now operating offshore Cameroon. Tango, a purpose-built 0.5 mtpa LNG production barge owned by Exmar, will be used for seasonal LNG production in Argentina
Exhibit 1. Cumulative Growth in LNG Liquefaction Capacity
(Includes LNG plants under construction)
Source: IMA/WER database, International Gas Union, GIIGNL, company records
FLNG Projects in the Planning Queue — Looking forward, 28 floating liquefaction projects are at various stages of planning and design. Eleven of these projects are in Africa, seven in Australia/SEA, five in North America and five in other areas of the world. All have the potential of becoming FLNG contracts. But not all will move to development. Some, perhaps many, will not make the investment hurdle.
Employing a qualitative analysis that reflects lessons learned from post-FID FLNG projects, we have examined each floating liquefaction project in the planning stage to determine whether the project has a strong, fair or weak probability of moving forward. The evaluation methodology takes into account the key success factors that influence the project investment decision, including
Drivers of project economic health
Stakeholder overlay considerations
Based on our success factors assessment, three of the planned projects in the planning queue have a strong probability (~80%) to proceed to development, nine have a fair (~50%) probability and the remaining sixteen projects have a weak probability (~30%).
The three projects rated strong have full government support, strong offtake buyer, rich gas with a local propane/butane market and relatively few technical barriers. Some of the projects with weak probability need to overcome host government opposition to offshore LNG production. Others are rated weak due to financing hurdles.
Exhibit 2. Regional Distribution of FLNG Projects in the Planning Queue
And Their Probability to Clear the Investment Hurdle
Source: IMA/WER Floating LNG Database
For example, in our evaluation of the Greater Tortue project in Senegal/Mauritania we gave a positive rating to most of the project attributes. The upstream site is in deep water, which is a negative. But this was offset by the lack of alternative commercialization options apart from LNG, support of the two governments and a determined BP as development operator and offtaker. Overall we gave this project a strong probability of proceeding to development. In December 2018 BP made the final investment decision and the initial FLNG is under construction.
In contrast, we rated the Fortuna FLNG project in Equatorial Guinea as having a weak probability of moving forward to development. While there were some important positives, the success potential was negatively impacted by technical risks associated with its deep water location, a high methane percentage that lowered potential revenue as there were no liquids to sell and relatively weak financial strength of the developer. This project was recently shelved and the developer took a $610 million impairment charge.
Role of Floating Regasification Terminals (FSRUs) — As the LNG trade expanded globally since the 1960s, so did requirements for import terminals to store and regasify LNG. The number of import terminals roughly doubled between 1980 and 2000 — and quadrupled between 2000 and 2019. In 2000 five countries had LNG import terminals. Now 43 countries have the ability to import and regasify LNG.
Until fourteen years ago all LNG regasification terminals were land based facilities. But floating LNG terminals have been gaining market share since Excelerate’s Gulf Gateway offshore terminal was installed in the GOM in 2005. Floating regasification terminals now account for around 15% of global LNG regasification terminal capacity — and the market share percentage will increase to around 18% by 2022 counting terminals now under construction.
Exhibit 3. Cumulative Growth in LNG Regasification Capacity
(Includes terminals under construction)
Source: IMA/WER database, International Gas Union, GIIGNL, company records
Floating LNG import terminals have a number of advantages over land terminals. Perhaps the biggest advantage is the ability to minimize first cost by leasing the FSRU rather than investing in a fixed land facility. Other advantages include the terminal can generally be built quicker, FSRUs can be relocated when the import requirement changes and the unit can be used for seasonal demand peaking and employed as a transport carrier in off-peak periods. Another advantage of FSRUs is they arrive on site as finished, turnkey regasification units requiring only hook up to the gas delivery pipeline (at least that’s the plan).
FSRUs in Service or on Order — Twenty nine FSRU terminals are in operation and another 17 FSRU terminals are under construction. Of the FSRUs in operation, nine are in SW Asia, six in the Mediterranean, five in South America, four in SE Asia and five elsewhere. A few of these terminals are a combination of floating storage with land regas plant.
Most of FSRUs in service are essentially standard LNG carriers fitted with a modular regasification plant. Newer FSRUs generally have capacity to store 160,000 to 170,000 m3 of LNG and are capable of providing 600+ mmcf/d gas offtake. A few FSRUs with more than 200,000 m3 storage have been built. Recently there has been interest in building small FSRUs to use as terminals with low gas import requirement.
FSRU Terminals in the Planning Queue — Looking forward, 51 additional FSRU terminals are at various stages of planning. Sixteen of the planned terminals are in SW Asia, nine in SE Asia, eight in South America/Caribbean, six in Africa and twelve are in other locations.
We have used a similar success factors methodology to evaluate the likelihood of planned FSRU terminals clearing the investment hurdle. The key success factors include:
Drivers of project economic health
Stakeholder overlay considerations
The success factors for FSRU terminals more heavily reflect the commercial aspects of the project — especially the ability to obtain project financing, which can be very difficult when terminal revenue is dependent on local offtakers. Several FSRU projects in which we have been involved hit a barrier when the offtaker take-or-pay contract was not acceptable to prospective lenders and/or the government was not willing or able to provide a sovereign guarantee for the offtake contract.
Based on our assessment of the 51 FSRU terminals in the planning queue, 21 have a strong probability (~80%) to proceed to development, 17 have a fair probability (~50%) and 13 a weak probability (~30%).
Strong FSRU projects generally have a powerful promoter, strong offtaker, moderate infrastructure requirement and are in a country where it is relatively easy to do business. Uniper/MOLs proposed FSRU terminal in the port of Wilhelmshaven is an example of a strong project. While the terminal will need to compete with pipeline gas, the project is backed by two strong players, terminal infrastructure needs are minimal, Germany is a relatively easy country in which to do business, LNG bunkering is a growing activity in Northern Europe and the project is driven by a need to have alternative gas supply sources for energy security.
Many of the weak projects have alternative gas sources (some being developed offshore), face financing barriers due to weak promoter and/or offtaker and/or need relatively extensive infrastructure improvements to support the proposed terminal.
For information about our 2019 Floating Liquefaction and Regasification report and database, please visit our website at www.worldenergyreports.com or contact Jim McCaul at 202 333 8501 or email imassoc@msn.com.
Exhibit 4. Regional Distribution of FSRU Terminals in the Planning Queue
And Their Probability to Clear the Investment Hurdle
Source: IMA/WER Floating LNG Database