The floating LNG (FLNG) market is set to grow strongly due largely to two already well-known factors. One is the explosion in global population over the next several decades accompanied by continued GDP growth in the major developing economies (mainly China and India), which is expected to see world energy demand surge by around 50%. The other is that, while oil’s percentage share of the energy mix will decline (although rising in actual terms), the largest growth will be in natural gas consumption.

According to Amanda Tay of analyst Douglas-Westwood, gas is the outstanding fuel for power generation, with gas-fired power plants having the lowest capex while producing less than half of the CO2 emissions of coal. It also is relatively cheap, and there are abundant reserves – the International Energy Agency suggests there is enough to last 230 years at today’s consumption levels.

Recent years have increasingly revealed giant new offshore gas reserves from the emerging frontiers of the Eastern Mediterranean to the outstanding resources off the east coast of Africa and the western shore of Australia. But these resources also share similar constraints -- they are often significant distances from potential markets and, unlike oil, are expensive to transport as most pipelines become economically unviable when longer than 1,000 km (621 miles).

FLNG’s star rising

FLNG’s star has been rising steadily as a result. Floating liquefaction is no new concept, of course – its development began in the 1970s. The practical logic behind it is simple, as cooling the gas to -162?C (-260?F) liquefies it and reduces it to one six-hundredth of its original volume, allowing it to be transported in large insulated tanks on ships.

Some 30% of global natural gas imports are already being delivered via LNG. Douglas-Westwood’s World LNG Market Forecast for the period 2013 to 2017 forecasts that US $143 billion will be spent on liquefaction plants, $35 billion on LNG carriers, and $50 billion on import facilities. The total is double the amount for the previous five-year period.

First movers

The first FLNG vessels are well under construction with Shell’s Prelude facility – destined for offshore Australia – the most well-known. The operators have succumbed to the solution’s inherent advantages, which eliminate the need for costly production platforms linked by long pipelines to shore.

There are other advantages. FLNG is attractive in providing more secure operations than onshore plants in regions of potential unrest. It also offers a solution for unwanted associated gas from oil production, which traditionally has been reinjected or flared, and removes the aspect of land footprints in environmentally sensitive areas.

Market of $64.4 billion

The predicted growth for the global FLNG market is astonishing. Expenditure is expected to rise from $3.7 billion (for the period 2007 to 2013) to $64.4 billion (2014 to 2020).

According to Douglas-Westwood, about two-thirds of the total spend is attributable to liquefaction infrastructure, while the remainder is from import and regasification facilities.

Year-on-year growth between now and 2020 is forecast to average 64% per year, and the analyst expects this rise to be more pronounced after the successful startup and operation of the first wave of pioneering FLNG vessels, namely Prelude and the PFLNG 1 unit offshore Malaysia.

Asia, which is a focus area for both floating liquefaction and regasification vessels, is expected to account for 29% of expenditure, contributing $18.2 billion.

Australasia accounts for the largest proportion of global capex at 30%, driven by its queue of liquefaction projects with a forecast expenditure of $19 billion between 2014 and 2020.

Shell’s Prelude facility will be the largest floating production unit ever made, displacing more water than six aircraft carriers. This craft will be in the vanguard of the FLNG fleet, and its performance will be scrutinized minutely by the industry for its operational and commercial performance.

Size matters

Size is a factor in FLNG thinking. Thierry Milatec, a lead process engineer at Saipem, has been working on the Abadi FLNG project destined to work offshore Indonesia for Inpex and Shell. Speaking at the Australasian Oil & Gas conference in Perth, Australia, he pointed out to delegates that an FPSO unit might normally be around 300 m (984 ft) in length, while a large-scale FLNG vessel is closer to 500 m (1,640 ft). “And a 100-m (328-ft) increase in length means you can essentially double the production levels,” he said.

Inpex recently awarded parallel contracts for the FEED of the Abadi facility, with one going to a JGC Corp./PT JGC Indonesia consortium and the other to a PT Saipem Indonesia/Saipem consortium. The eventual winner will progress into a full FLNG engineering, procurement, and construction phase.

A further FLNG unit also has been chosen by Malaysia’s Petronas for its second such project in its domestic waters. It has issued a design, build, and installation contract for the PFLNG 2 unit, which will be located in deep water off the coast of Sabah.

The engineering, procurement, construction, installation, and commissioning contract went to a consortium of JGC Corp., Samsung Heavy Industries Co. Ltd., JGC (Malaysia) Sdn. Bhd., and Samsung Heavy Industries (M) Sdn. Bhd.

The facility will be moored on the Rotan field in Block H and will produce 1.5 million tonnes per annum (MMtpa) of LNG. It is scheduled to be ready for startup by early 2018. The operator’s PFLNG 1 unit will be moored on the Kanowit field offshore Sarawak, is slightly smaller (designed to produce 1.2 MMtpa of LNG), and is scheduled for startup by year-end 2015.

Changing LNG landscape

Petronas said that, once operational, both its PFLNG facilities are expected to “change the landscape of the LNG business.” As such, it added, the facilities will play a significant role in the company’s efforts to unlock Malaysia’s remote and stranded gas reserves.

Elsewhere, the eastern Mediterranean has Noble Energy, Woodside, and its partners progressing toward the use of an FLNG unit for the second development phase of the producing Tamar field offshore Israel, while a further unit is expected to be employed on the giant neighboring Leviathan field, the world’s largest offshore gas discovery of the last decade. A third unit also is being considered for the development of another large gas field (Cyprus-A) close to these two fields in Cypriot waters.

Off Africa’s east coast, Eni and its partners are considering an FLNG solution for monetizing part of their giant gas reserves off the coast of Mozambique, while on Africa’s west coast Ophir Energy has shortlisted bidders to supply it with a leased FLNG unit for its deepwater gas resources in Block R off Equatorial Guinea.
Perhaps tellingly, the initial costs pre-first gas for Ophir’s project had previously been estimated by the company at between $1 billion and $1.5 billion. It says it chose FLNG as the fastest route for getting its gas to market and that it also had a lower cost of production compared to a land-based LNG train (as well as enabling staged upstream capex and an expandable vessel capacity).

Douglas-Westwood’s Tay supports that approach but warned, “In some situations, an FLNG vessel built in a specialist shipyard can be a lower-cost solution than a one-off ‘stick-built’ onshore plant. However, such offshore vessels, which are huge in size, are still a high-cost item with significant technical challenges.”

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