LNG liquefaction and regasification takes to the seas—a $27 billion business

Recent years have seen the completion of some major high-profile floating LNG  regasification terminals, particularly in the US. Now, after more than a decade of discussion, floating LNG liquefaction is finally being contracted.  

Steve Robertson and Lucy Miller, Douglas-Westwood Ltd. 

While gas demand remains strong and the construction of onshore LNG projects has experienced substantial delays and cost increases, much attention is being directed to the opportunities arising from the new and potentially groundbreaking floating liquefaction technology market. Floating LNG regasification import terminals are already established. Capital expenditure on FLNG facilities (both liquefaction and regasification) is expected to grow from $695 million in 2008 to just under $8.5 billion in 2015. This article will examine the key market drivers for FLNG liqeufaction, provide an overview of the FLNG import terminals market, and review some of the key enabling technologies. Results are taken from The World FLNG Market Report 2009−2015, published by Douglas-Westwood.

DRIVERS FOR FLNG

There are a number of issues facing the LNG business as a whole—most notably rising Engineering, Procurement and Construction (EPC) costs, local opposition to onshore LNG facilities and geopolitical issues. Despite strong demand-side fundamentals, these issues have caused many final investment decisions for onshore liquefaction projects to be delayed or postponed. This is set to lead to supply-side constraints that will limit the growth rate of the industry.

In particular, increased security and safety concerns surrounding onshore LNG terminals by local communities in North America and Western Europe have increased the number of FLNG proposals. For example, Regasification Vessels (RVs) are now becoming increasingly common as they often offer a much quicker method of developing a project than onshore solutions. There are several main drivers for the development of FLNG.

Increasing gas demand. There has been a steady increase in demand for gas in the developing world as power generation demand soars due to economic development. Peak oil fears—i.e., the notion that oil is finite—and a move away from carbon-intensive fuels toward gas and renewable power generation have also increased gas demand. These added demand pressures have raised the value of gas assets globally.

Monetization. Significant amounts of gas reserves are economically “stranded.” Without access to markets, the produced gas is either flared, re-injected or not developed. FLNG liquefaction offers a viable alternative to land-based construction of new infrastructure for monetizing these gas reserves.

Onshore terminal EPC costs. Escalating costs of labor and raw materials and the tight contractor market have led to large increases in the cost of new EPC contracts, especially for onshore liquefaction terminals.

Supply security. The perceived vulnerability of onshore facilities, particularly in politically difficult regions, is leading energy companies to give serious consideration to the benefits of offshore solutions such as FLNG.

Opposition to onshore facilities. The “Not In My Back Yard” (NIMBY) attitude has led to increasing use of offshore solutions, particularly in the US.

Environmental. FLNG liquefaction will allow associated gas to be monetized, avoiding gas flaring. In most cases, it will be more environmentally friendly than onshore terminals.

ENABLING TECHNOLOGIES

Taking LNG regasification and liquefaction facilities offshore presents a number of design challenges, particularly regarding the reduction in size (footprint) of the necessary liquefaction or regasification process equipment.

Containment systems. Sloshing, which occurs from the ship’s motion, is a major problem in the storage of LNG and is heightened when the vessel is partially full. Membrane-type containment systems, which are found on over half of the current LNG carrier fleet, are particularly vulnerable to sloshing damage and therefore are mostly unsuitable for situations where the vessels spend a large amount of time partially loaded, such as FLNG liquefaction and regasification terminals. The Kvaerner-Moss spherical containment system is also relatively unsuitable for FLNG applications, as it limits the all-important deck space.

Potential FLNG designers are increasingly moving away from existing systems mentioned above to new prismatic containment systems that are designed specifically for FLNG applications such as Aker’s Aluminium Double Barrel Tank (ADBT) and Sevan Marine’s LNG FPSO Containment System. These systems are slosh resistant and offer a flat deck space.

Offloading systems. Ship-to-ship transfer is one of the least proven technologies in the LNG industry and, therefore, is the focus of much research, design and testing.

In onshore facilities, marine loading arms are used to transfer LNG and/or gas to or from an LNG carrier. These loading arms can also be used offshore but require the two vessels to remain close to each other, either side by side or in tandem (stern to bow), which is dangerous in harsh sea and weather conditions.

An alternative to loading arms is a flexible cryogenic hose. This is an emerging technology and has not been fully implemented, although a successful transfer of LNG took place in a side-by-side arrangement using cryogenic hoses at the Teesside GasPort in February 2007. Tandem arrangement offers greater flexibility for cryogenic hoses and is being considered as the most likely arrangement by cryogenic hose developers. The Amplitude LNG Loading System (ALLS) being developed by a Joint Industry Project (JIP) is one example of a tandem solution.

ALLS makes use of a flexible cryogenic hose developed by Technip, and it is expected that this tandem method will greatly improve the operating envelope of loading and discharge of LNG in open sea conditions. However, the solution that will ultimately offer the most flexibility for the FLNG business and significantly reduce the need for costly modifications to be made to current LNG carriers is a floating version of the JIP flexible hose system. Such a system will allow the hose to be connected to either an LNG carrier’s midship manifold or to a specially design bow manifold.

Fig. 1. Global Capex on FLNG facilities by region 2004−2015.

FLNG import (regasification) terminals. Receiving terminals are undoubtedly the most advanced of the FLNG developments. The world’s first FLNG import terminal—Excelerate Energy’s Gulf Gateway in the US Gulf of Mexico—commenced operations in 2005. There are now four other FLNG import terminals in operation: Bahia Blanca, Argentina; Pecém, Brazil; offshore Boston (Northeast Gateway), US; and Teesside, UK. Unlike the other operational FLNG terminals, the Pecém terminal stores the LNG onboard and is a Floating Storage and Regasification Unit (FSRU) rather than a Regasification Vessel (RV).

We forecast that the next decade will see a huge rise in the number of FLNG import terminals, dominated by North America (US) and Western Europe. Africa (South Africa), Asia (Pakistan) and the Middle East (Dubai) are expected to see their first FLNG import terminals come onstream during the 2009−2015 period.

FLNG liquefaction terminals. The world’s first LNG Floating Production, Storage and Offloading (FPSO) vessel is expected to be one of Flex LNG’s, four of which are under construction. Two of these vessels have been assigned to fields—one is heading to Peak Petroleum’s Bilabri Field, offshore Nigeria, and the other is heading to Papua New Guinea, where it is going to be used by Rift Oil for its onshore Puk Puk Field.

These FLNG/FPSOs are expected to begin production in 2011−2012 and are the only liquefaction vessels on order. However, there is an increasing interest in this sector, and many major companies such as BW Offshore, Shell, Sevan Marine, SBM Offshore, Inpex and Höegh LNG have unveiled LNG FPSO design concepts.

Figure 1 shows capital expenditure for both FLNG liquefaction and import facilities segmented by region between 2004 and 2015. We forecast that annual expenditure will reach $8.5 billion by 2015 and will total $26.8 billion during the 2009–2015 period. Africa and Asia are expected to become major FLNG exporters and dominate global Capex in this technology.

Asia will account for the largest proportion of the $27 billion global Capex forecast with a 32% share. Africa is the next most significant region with $5.3 billion, or 20% of the global total. North America, despite having the greatest number of FLNG projects—which are all import terminals—still only accounts for $3.3 billion, or 12%, of global Capex.

This 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 also 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 (FEED), project management and detailed design engineering, construction engineering (field engineering), construction and installation (hookup and commissioning).

In terms of the split between import and export terminals, import terminals account for 27% of the expenditure between 2009 and 2015, though this proportion changes significantly over the period. Key service items include construction at nearly $19 billion and detailed design engineering and project management at over $3 billion during the period to 2015.

SUMMARY

Since the opening of the world’s first floating terminal in 2005, the FLNG industry has grown rapidly and is now a major focus of design, research and investment. Delays to onshore projects, escalating EPC costs, environmental and political issues are all seen as major drivers to the development of this sector. FLNG liquefaction, though still an unproven technology, also offers great potential in the monetization of stranded gas that would otherwise be flared, re-injected or not developed.   

THE AUTHORS
	Steve Robertson heads Douglas-Westwood Ltd.’s oil and gas team. His experience with DWL since 2002 includes managing many commercial due-diligence studies for investment banks and private equity firms. He is lead author and joint author of several of DWL’s published market studies and participated in DWL’s industry-leading research in regions such as Russia and the Middle East and in technology areas including onshore oilfield services, drilling markets, field development, floating production and subsea processing. He is a graduate in economics and computing and is a regular speaker on the subject of oilfield services markets.
	Lucy Miller is an analyst with Douglas-Westwood Ltd. and has conducted market analysis on a variety of DWL’s commissioned research projects for clients in the oil and gas sector, as part of commercial due-diligence and published market studies. She has contributed to a number of published studies. Lucy has a background in the offshore oil and gas sector and previously worked for FoundOcean Ltd. She has a degree in economics and geography. Contact via publications@dw-1.com.