FLNG—a quiet revolution
Shell and Petronas pushed the technology first, but African developers are poised to transform the continent into an FLNG production hub
The time has come to find out if liquefaction for floating liquefied natural gas is all it's cracked up to be. Several high-profile projects are in development—and one of the principal test beds will be sub-Saharan Africa, now a magnet for investment in the fledgling sector.
Two of the world's first major FLNG projects are elsewhere—Petronas's PFLNG Satu facility, capable of processing 1.2m tonnes a year, is already operating in Malaysia, and Shell's giant 3.6m-t/y Prelude project should start production offshore Western Australia next year. But around 30% of global capital expenditure on FLNG over the next six years is planned for projects operating in Africa.
Engineers are confident the technology will work, which is just as well, given that Westwood Global Energy, a consultancy, estimates that FLNG capital spending for African projects will total some $7.9bn out of a global spend of $26.4bn in 2018-23.
Dominating this spending will be Eni's 3.4m-t/y Coral South project, exploiting huge reserves offshore Mozambique, which is expected to cost around $5bn. A plethora of smaller FLNG facilities are also planned in West Africa, notably in Cameroon, Congo Brazzaville, Equatorial Guinea and for operation around the maritime border between Senegal and Mauritania.
The principal driving force for this investment is the belief that demand for LNG from new projects will pick up in the early 2020s, as the glut in the global market is gradually eroded—that's when most of the planned projects are likely to come on stream. But operators have several reasons to prefer floating liquefaction over onshore plants.
For one, offshore operations offset some political risk—as shown by international oil companies' successful use of floating, production, storage and offloading vessels pumping oil in Angolan and Nigerian waters.
30% - Share of FLNG spend expected for Africa to 2023
It won't have hurt the investment profile of the Coral South FLNG project that it is based entirely offshore in a country with no experience of handling the logistics involved in multi-billion-dollar projects such as onshore liquefaction. Onshore political risks evaporate when the plant arrives more or less fully formed from Keppel's Singapore shipyard.
But that's not the whole story. Indeed, plans are now afoot for an onshore LNG project in Mozambique, with Anadarko planning a two-train project in Cabo Delgado province. So companies aren't running scared of working onshore.
Another factor helping Coral South to get a positive final investment decision in June 2017 will also have been the relatively low cost of the project at a time of economic hardship for the industry. The FLNG plant's price tag should come in at well under half the $15bn-30bn or so that a larger onshore multi-train plant would cost.
The relatively fast pace of development possible for FLNG is also a factor-especially for Coral South, where a 20-year sales agreement with BP to take the entire output of the project has already been tied up.
Mozambique's FLNG project should also show that an LNG industry can be successfully launched in an impoverished country with little experience of hydrocarbons exports. Both the IOCs and Maputo are now fully committed to starting offshore LNG exports, so future investment in land-based facilities may now prove easier to attract.
Such thinking will have contributed to the decision of Mozambique's president Filipe Nyusi to agree to Coral South, given the government had initially favoured land-based development, as a way of stimulating the local economy. Neighbouring Tanzania—which shares the gas reserves of the offshore Rovuma Basin with Mozambique—is holding out for an onshore LNG export plant as a way of kick-starting its hydrocarbons sector, but plans have faltered.
Small is beautiful
The development of FLNG in West Africa is taking place against a different background. Several of the planned projects are being developed by tiny pioneers with little cashflow and based on relatively small gas resources, so the rationale for FLNG is closer to that envisaged for the technology when it was first conceived. Here the technology enables companies to exploit offshore reserves that would otherwise be stranded, given the prohibitive expense of subsea-pipeline infrastructure and land-based terminals.
The smaller-scale of West African FLNG schemes also means that operators can use much cheaper off-the-peg solutions rather than costly bespoke facilities like Prelude or Coral South. At least three of the projects lined up in West Africa are likely to use converted LNG carriers owned by Golar LNG, built to a standardised design and fitted with four Prico liquefaction units, based on Black & Veatch's technology, that can provide a capacity of up to around 2.4m t/y per carrier.
"Reserves in Equatorial Guinea and Cameroon are not massive like some of those in Australasia or East Africa. These are small and medium-sized projects that can be achieved easily using conversion-based FLNG projects," says Mark Adeosun, an analyst at Westwood Global Energy. "These are quicker to market, they are cheaper and, when the gasfields stop producing, you can always take your FLNG carrier and go elsewhere."
The conversion contracts awarded to the Keppel shipyard in Singapore for the Golar vessels were valued at around $0.6bn-0.8bn per carrier. While the overall cost of each project will be greater than that—perhaps $1.5bn-2bn—analysts say the conversion cost is probably about a third of that for construction of Petronas's pioneering facility and cheaper than Coral South, the overall cost of which is set to be around $1.4bn per t/y of capacity.
Just as important, the model employed for these Golar projects is well suited to the needs of the smaller companies developing these West African reserves. The likes of Perenco in Cameroon or Ophir in Equatorial Guinea may have the assets under the seabed, but they don't have the cashflow to get mega-projects off the ground or run them singlehandedly.
Golar's model involves building FLNG facilities more-or-less on spec, then either leasing them to operators or acquiring a substantial stake in the production project to cover costs. So the minnows involved do not need to raise vast sums to put LNG exports in train.
For the Kribi project in Cameroon, which is based on around 0.5 trillion cubic feet of gas from the Eborne and Sanaga Sud fields, project developer Perenco is leasing the Hilli Episeyo vessel from Golar for eight years. The vessel could be over the field by the end of the year, after a short delay recently for further testing at Keppel's yard. That would make it Africa's first operational FLNG project.
The principal driving force for this investment is the belief that demand for LNG from new projects will pick up in the early 2020s
Two more of Golar's converted tankers built to the same standardised design are being fitted in Singapore. One is scheduled to go to the Fortuna FLNG project in Equatorial Guinea, and the second to another Equatorial Guinea project later in the decade.
For the Fortuna project, Golar is working in tandem with Schlumberger, under the OneLNG banner—a partnership intended to add value to projects by pooling the resources of the vessel owner with one of the leading oil and gas technology companies.
For small firms such as Ophir, whose on-the-ground expertise lies largely in exploration, the ability to hand over project delivery to the likes of OneLNG offers many advantages.
"One of the most problematic things for a small project developer, with a staff of just a few people, is to manage the interfaces between different contractors on a major project. If you can hand all that over to someone else then you do away with most of the headaches," says Brian Songhurst, a research associate at the Oxford Institute of Energy Studies.
In fact, for Fortuna, OneLNG has also stepped into the project as a joint-venture partner taking a 66.2% stake, leaving Ophir with the rest. In late August, Gunvor was awarded a 10-year deal to offtake all of the project's LNG, which is based on some 2.5 trillion cf of gas resources.
The West African FLNG project that could be larger than the others is Tortue—being developed by BP and Kosmos from some 15 trillion cf of discovered gas resources straddling the Mauritania/Senegal border. As with Coral South on the other side of the continent, using FLNG to start exports sidesteps the onshore risks of a country with little such development experience. It also averts a politically charged decision over which country should host an onshore plant. At present, a 2.5m-t/y FLNG facility is envisaged beginning operations in around 2021-22, and there is talk of a second FLNG project later.
Whether Africa's FLNG boom lasts past the early 2020s may depend on the Chinese money financing around $7bn of these projects, according to some estimates. Chinese backers have been funding African infrastructure and commodities projects for years in the hope of gaining resources and economic clout. Buying into FLNG is a natural extension of this, potentially providing gas imports for China if the technology takes off, while offering Chinese companies the opportunity to gain expertise in the sector.
New Age, which is hoping to develop FLNG projects in both Congo-Brazzaville and Cameroon, underpinned by Chinese investment, intends to use Chinese shipyards to build its facilities.