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Big spending to boost FLNG market, says report

The day of floating liquefied natural gas is coming, and the technique is set to see a significant rise in investment

Investment in the floating liquefied natural gas (FLNG) market will soar over the next six years, driven by spending on liquefaction facilities, consultancy Douglas Westwood said in a new report.Global spending on FLNG facilities will reach $64.4 billion between 2014 and 2020, 65% of which will be invested in liquefaction infrastructure. The remaining $22.5bn will be spent on LNG import and regasification facilities, Douglas Westwood said in the report, World FLNG Market Forecast 2014-2020.

Asia will drive global spending on FLNG, accounting for 29% of the total, around $18.8bn. About 51% of total global spending on import infrastructure will also be in Asia. There will also be huge investments in FLNG vessels in Australia, which is expected to soar by 55% per year throughout the period. Although Douglas Westwood does not expect Australia to have any FLNG import-expenditure during the period, it will account for $18.6bn - 29% - of total global FLNG spending between 2014-2020. "The previous seven-year period saw minimal investment in floating liquefaction infrastructure, but now with the introduction of floating LNG vessels, global FLNG capex is expected to increase significantly over the next seven years," said Amanda Tay, the report's author. 

Tay added that spending in the FLNG market is expected to increase by 64% per year between now and 2020. This will increase further after the start-up of a number of high-profile FLNG projects, such as Shell's Prelude FLNG vessel and Petronas's PFLNG. The promise of developing remote offshore gas reserves, relocation flexibility and increasing onshore terminal costs will all drive the surge in FLNG investment. 

Severe cost escalation for onshore LNG projects has also sparked interest in the FLNG sector. In December, Chevron increased its cost estimate for its Gorgon LNG project, in Western Australia, by a further $2bn to $54bn. This is up from an initial cost estimate of $37bn in 2009. FLNG developers are aiming for costs of be-tween $700 and $900 per tonne (/t) of annual liquefaction capacity, Douglas Westwood said. Costs for onshore terminals typically exceed $1,500/t each year. 

Rising demand

Increasing long-term gas demand will also continue to support investment in the sector. The International Energy Agency (IEA) expects global gas demand to rise by global gas demand is expected to rise by 2% per year between now and 2030. Gas demand in the Asia Pacific region is expected to reach more than 800bn cubic metres (cm) a year by 2017, up from around 300bn cm/y in 2000.

The consultancy expects spending on FLNG liquefaction ves-sels to reach $42bn between 2014 and 2020, representing 65% of total FLNG expenditure.  This annual growth rate of 43% will be driven by planned projects in Australasia, Asia and North America. Around 44% of total global spending on FLNG liquefaction facilities will be in Australia. "We expect Australasia to drive the most demand during this period, with an expected eight projects from the Browse and Bonaparte (basins, as well as) the East Timor Sea," the report said. "The activities within Australasia alone are expected to total an estimated $18.6bn in expenditure between 2014 and 2020." 

Asia and North America will each account for more than 17% of the total. Asia will see 17% of global floating liquefaction vessel spending, totalling $7.3bn during the 2014-2020 period, with activity centred around the Abadi field, offshore Indonesia, and the Kumong cluster fields, offshore Malaysia.

Regasification 

Douglas Westwood also expects strong growth in the floating regasification market, particularly in Asia and Latin America. Spending on FLNG import and regasification facilities will rise by 27% every year, the consultancy said. The report said rising gas demand in Asia shows the region "is poised to exploit floating regasification potential". Asia's only operational regasification facility is in Indonesia's Jakarta Bay. The country's second facility, Lampung FSRU, is currently under construction and expected to come on stream in 2015. 

Douglas Westwood expects 21 regasification facilities could be built in Asia in the forecast period, and believes 15 will be built in Latin America by 2020. This is up from the four which are operational in Brazil's Pecem and Guanabara Bay projects and Argentina's Bahia Blanca and Escobar developments. Latin America will be a key region for growth in floating regasification which will be seen as a quick fix for gas-supply shortages, the report said. Other regasification facilities likely to be built in between now and 2020 include eight in North America, nine in Western Europe and four in the Middle East. 

Douglas Westwood expects "a continuing stream of investments and sanctioning" for FLNG projects after the start-up of Petronas' PFLNG 1 and Shell's Prelude projects. This investment will boost demand for equipment, engineering and service providers worldwide, the report said. 

However, any obstacles these pioneering FLNG projects may face could also delay or halt projects completely, it said. Issues such as trying to use the FLNG facilities in harsher environments could pose a challenge for the technology, it said. There are also issues with political opposition to FLNG projects and some projects have faced difficulty getting through the final stages because of local protests. There have been objections to Prelude in Western Australia for fear local jobs will be lost. Despite the technical and political obstacles FLNG may face, many factors support soaring growth in the sector over the next decade, Douglas Westwood said.  "When compared to its onshore alternative, FLNG offers higher security, a cheaper alternative, shorter lead time and the ability to monetise stranded gas fields", the report said. "While there are inherent risks, FLNG is undoubtedly a prospective market that in the long-run that is poised to drive many future gas developments."

Key points from the report: 

  • Total global capex for FLNG projects will increase from $3.7bn in 2014 to $63.9bn in 2020, reaching $12.6bn in 2019 as a large proportion of projects coming on stream;
  • Asia, which will be a major focus area for both floating liquefaction and regasification vessels, is expected to account for around $18.2bn, about  29% of total expenditure; 
  • Australasia will account for the largest proportion of global FLNG capex at 30%. This will be driven by liquefaction projects. The Prelude and Browse developments will be the main capex drivers generating $19.1bn between2014-2020;
  • Latin America will account for 7% of global FLNG capex, investing $4.5bn. This will be driven by both floating import and export facilities. The use of floating liquefaction could increase beyond this, with the potential for it to be used for deep-water production and processing; 
  • North America will halt the majority of its import projects because of rising unconventional gas production. Around 89% of US spending of FLNG will be for liquefaction;
  • In the Middle East, most of FLNG spending will be earmarked for liquefaction. The region will represent 9% of global expenditure;
  • Western Europe will represent 6% of total global capex at $3.6bn, mainly for import facilities; 
  • Africa will secure 5% of global investment at $3.2bn. This will be largely attributed (84%) to liquefaction expenditure; and
  • Eastern Europe and FSU will see some investment over the forecast period, but this will be minimal at 2% of global investment. Eastern Europe's investment will be spent on import facilities as it diversifies its gas supply away from Russia. 
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