Floating LNG Is Riding The Tide

This excerpt is from a report that is available to subscribers of Stratas Advisors’ Global LNG service.

Petronas marked an important milestone in the LNG industry in late March by shipping the first cargo from a floating liquefaction unit. While relatively small with an annual capacity of 1.2 mtpa compared to its gargantuan neighbors in Australia, Indonesia, and onshore Malaysia, the project, known as PFLNG Satu, represents a small but growing piece of the future of liquefaction.

PFLNG Satu began construction in mid-2013, shortly after Shell began construction on Prelude FLNG in late 2012. In the ensuing two years, Petronas took FID on a second FLNG, and Exmar agreed to provide the Western hemisphere’s first unit, which would be moored offshore Colombia. Since then, other projects have been explored on both the east and west coasts of Africa as well as in Asia and Australia.

Upon first look, FLNG technology offers producers the ability to monetize stranded offshore gas fields that were previously thought to be inaccessible. But another significant market dynamic of the time influenced their growth. When these projects were considered in the 2011-2014 time frame, Australia was in the midst of an enormous LNG investment phase and the U.S. was poised to do the same. Construction costs had started to skyrocket and labor shortages were anticipated in the short- to mid-term.

FLNG offered a solution to these issues. Shell, recognizing the cost challenges in Australia, opted to contract South Korea’s Samsung Heavy Industries for construction. Petronas followed suit, selecting Daewoo for PFLNG Satu. The modular nature of the technology allowed the two companies to keep costs relatively low by outsourcing the construction to locations where there were no labor issues. Unlike other onshore projects of the time, FLNG did not experience cost blowouts nor did they see the delays that plagued Australian projects.

The technology has not been immune to the market downturn, however. Exmar’s FLNG in Colombia was canceled by Pacific Exploration and Production due to changes in the country’s natural gas market as well as the changes in the international LNG market. Browse was shelved due to its cost issues, while Abadi was dropped after the Indonesian government decided to pursue an onshore option instead.

As far as floating technology, FSRUs have received the lion’s share of interest and coverage in the LNG industry. Their relative low costs and short lead times have opened up dozens of new markets and will help to nurture the nascent gas-to-power markets in developing parts of the world such as Latin America, West Africa, and South Asia.