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FLNG expenditure set to soar as interest increases

Interest in floating LNG liquefaction and regasification has grown substantially within the last year, a trend that is likely to continue over the next seven years. By Lucy Miller and Ian Jones*

Awareness of floating LNG (FLNG) has grown rapidly in recent years and the sector is now enjoying a very high profile. Importing countries are sanctioning floating regasification units, while various floating liquefaction systems are progressing well through the design and engineering process.

Australia and southeast Asia will be key areas for the deployment of FLNG production and many players are evaluating the technology with an intention to deploy. For some remote, stranded-gas assets it is the only technically feasible option to monetise the reserves, for others there are additional benefits in terms of offering greater flexibility, reduced lead times and even cost savings.

Floating liquefaction

Despite a recent surge of interest, FLNG liquefaction is not a new idea. The concept has existed in some capacity since the 1950s, when an LNG plant was installed on a river barge in Louisiana. Since the 1970s, conceptual studies have taken place to try and utilise gas-liquefaction technology offshore, but these saw no further development.

Moving liquefaction technology offshore presents design challenges compared with conventional gas production and transportation methods favoured by energy companies in the past. But rising global gas demand has pushed many energy companies to refocus on the development of their resources. Long-term gas-demand fundamentals remain strong, with the International Energy Agency forecasting annual gas-supply growth to average 1.7% from 2009 to 2030. By 2030, gas is expected to account for 23% of worldwide primary energy supply, much of which will be transported as LNG.

For stranded gas reserves, far from existing infrastructure such as pipelines and gas-processing facilities, onshore LNG-export projects are often unfeasible. The Timor Sea Joint Petroleum Development Area, provides an excellent example: subsea pipelines to the nearest shoreline (in this case on Timor-Leste) would have to cross the Timor Trench, which reaches a depth of 3,300 metres at its deepest point. FLNG is seen as a potential development solution and many fields in the area, such as Prelude and Greater Sunrise, have been identified as possible FLNG vessel locations – in December, Shell received Australian government approval to proceed with FLNG plans for Prelude, a final investment decision on the world’s first floating liquefaction facility was taken last week.

FLNG is also seen as a potential solution to the problem of associated gas, produced during oil exploration and production. In areas where there is little gas-processing infrastructure, it has traditionally been reinjected, or flared – which is extremely wasteful and environmentally damaging. Medium-size FLNG vessels (1m-3m tonnes a year) provide a viable solution for utilisation of these smaller gas volumes.

But moving LNG technology offshore creates design challenges, particularly regarding the reduction in size, or footprint, of the necessary liquefaction or regasification process equipment, in order to accommodate it on a vessel. Other issues include the use of specific containment and offloading systems.

Sloshing, which occurs when the ship’s motion causes a violent liquid motion in the storage tanks, is a significant problem and is heightened when the tanks are only partially full. Single-row, membrane-type containment systems, which are found on over half of the LNG carrier fleet, are particularly vulnerable to sloshing damage, making them unsuitable for situations where vessels spend a large amount of time partially loaded, such as FLNG liquefaction terminals. The Kværner-Moss spherical containment system is also seen by most designers as unsuitable for FLNG applications, because it limits deck space needed for the all-important topsides.

Potential FLNG liquefaction designers are increasingly moving away from existing systems to either IHI’s prismatic SPB, which is operational on two small LNG carriers, or to new containment systems designed specifically for FLNG applications, such as the double-row membrane system, or Sevan Marine’s LNG FPSO (floating production, storage and offloading) containment system. These designs are sloshing resistant and offer a flat deck space.

Both single-row membrane and spherical-type containment systems have, however, been successfully used on FLNG regasfication vessels. These vessels are often moored in sheltered ports, such as Bahia Blanca in Argentina, Brazil’s Pecém and Teesside, in the UK, where weather and ocean conditions are less severe than on the open sea. The deck space required for regasification equipment is also much less than for liquefaction processes, allowing FLNG regasification developers, such as Golar LNG, to convert spherical-type LNG carriers into floating, storage and regasification units.

Offloading systems

Ship-to-ship transfer is one of the least proved technologies in the LNG Industry and, consequently, is the focus of much research, design and testing. Most of the operational floating regasification terminals use loading arms, similar to those in use at onshore terminals for more than 40 years. But side-by-side offloading, which is likely to be the most common use of loading arms in offshore situations, has its problems. Sea states with wave heights greater than around 2.5 metres would make this type of offloading impossible, requiring an alternative solution.

One option is a cryogenic hose designed for use in hostile sea conditions. The first transfer of LNG between two vessels using cryogenic hoses took place at the Teesside GasPort in 2007. Since then, this emerging technology has been the focus of much research and development.

FLNG Regasification

FLNG regasification – a proved technology, with nine operational terminals in Argentina, Brazil, Dubai, Kuwait, the UK and the US – is fast becoming a solution of choice for countries seeking fast-track, or temporary LNG-import solutions. While onshore terminals retain their comparative advantage when larger import and storage capacities are required, FLNG’s advantages lie in its quick lead-times and flexibility.

Focus areas for FLNG regasification terminal development include southeast Asia, parts of the Middle East and Latin America. The cost and construction-time advantages have proved alluring, even in countries such as India and China, which have traditionally favoured onshore developments. Indonesia, with its stranded gasfields and rapidly growing cities and energy demand, is a focus for both FLNG liquefaction projects and regasification terminals.

The US was an important driver of FLNG activity and the country has three FLNG regasification terminals in operation – in the Gulf of Mexico and offshore Boston, Massachusetts. But many promising US offshore projects have been delayed, as a result of a number of factors, including: the strict regulatory system; not-in-my-back-yard attitudes; and environmental concerns regarding the open-loop vaporisation system and its effects on marine habitats.

But perhaps most importantly, the unprecedented increase in domestic unconventional gas reserves, such as shale gas, has caused US developers to rethink their LNG import plans. Future import levels are likely to be determined by the balance of the cost of shale-gas production compared with spot prices for LNG cargoes.

Market forecasts

We forecast $28bn will be spent on FLNG facilities over the 2011 to 2017 period (see Figure 1). Although there will be a large number of FLNG regasification projects, the vast majority of this capital expenditure (capex) will be spent on liquefaction projects, because capex associated with a floating liquefaction vessel is more than triple that of a typical floating import terminal.

The capex forecast is the output of a market model built on a project-by-project review of development prospects, with the timing of expenditure phased to reflect likely project structure. This model has been developed in consultation with industry experts and sense-checked to account for external factors such as supply chain constraints.

The forecasts are segmented by services such as technology licensing; front-end engineering and design; project management and detailed design engineering; construction engineering (field engineering); construction and installation (hook-up and commissioning).

Regionally, Australasia will account for the largest proportion of the $28bn global capex forecast for the period. Asia is the next most significant region, also with around a quarter of the total capex forecast. Despite a number of prospects, expenditure in North America is forecast to account for less than 5% of global capex, largely because of increased domestic gas production.

Lucy Miller has conducted market analysis on a variety of DW’s commissioned research projects for clients in the oil and gas sector, as part of commercial due-diligence and published market studies. She is lead author of DW’s published market studies: The World FLNG Market Report and The World LNG Market Report.

Ian Jones contributes to DW’s commissioned research, commercial due diligence and published market studies in the oil and gas and renewable energy sectors. He co-authored The World LNG Market Report.

For further information: www.dw-1.com. The authors can be contacted at publications@dw-1.com or +44 1227 780999 

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