The floating LNG or “FLNG” concept has existed for decades; however it was not until 2011 that a long term solution was officially cemented with the signing of the $3bn build contract for ‘PRELUDE FLNG’. Following this, the FLNG sector has seen a new wave of activity, and contracts for 2 further units were placed in early February. Early estimates suggest as much as $85bn could be invested in FLNG technology by 2020, making it an exciting growth area.
A Demand Story
The Graph of the Month displays the cumulative potential FLNG requirement of 36 mooted FLNG projects with targeted delivery dates up to 2020. Of course, it is highly unlikely that all of these projects will actually come to fruition, with those rated ‘possible’ significantly more speculative than the more ‘probable’ units. However, if all those FLNG projects currently deemed ‘probable’ are ordered, then the number of operational units could be as many as 10 units by 2018 and 16 by 2020.
The major reason for the interest in FLNG is the desire to exploit ‘stranded’ gas fields far from existing infrastructure, given the strength of future gas demand expectations (BP’s Energy Outlook puts gas demand growth at 2.2% p.a. in the period to 2025). Accordingly, offshore gas output is expected to grow at a compound rate of 4.5% per year to 140bn cfd by 2020. FLNG could become a key part of this.
The major focus of growth in projects which could utilise FLNG will be Asia Pacific, notably off Australia. Close to half of potential FLNG locations are in the region, many in the Browse, Carnarvon and Bonaparte basins off north west Australia. While the Asia Pacific region remains a key area of growth, the Americas and Africa also hold opportunities for the positioning of potential units, with 17% apiece.
At the start of February, 2 further FLNG orders were placed. Petronas took the final investment decision (FID) for Rotan gas field off Malaysia, and awarded the contract for the hull to Samsung H.I. Meanwhile, Exmar have added a second moored barge unit to the order already under construction for use on Colombia’s Caribbean coast.
Not Yet Tried and Tested
Although this demonstrates the continued positivity surrounding the FLNG sector, it remains untested, with FLNG technology yet to enter operation. The first FLNG unit is slated for delivery in 2014, and will be the first of the Exmar barge-shaped units for Colombia. However, until the first LNG cargo is loaded (2015), it is unclear what technical challenges may be faced. Furthermore, the FLNG sector also faces risk from commodity prices. Should the US start to export shale gas on a large scale, this may produce downward pressure on gas prices, potentially making FLNG solutions less attractive to investors.
Fuelling the Future
So, the FLNG sector is still in its infancy and the outcome of the first projects could have a big impact on future investment. Ultimately, such a nascent sector faces technological and economic challenges. However, with offshore gas output set to increase substantially, it is likely that requirements for FLNG vessels will continue to progress.