Archives for posts with tag: FLNG

Natural gas demand and onshore and offshore production data is now available in Offshore Intelligence Monthly, split out by region and country on pages 3, 6-7 and 20-25. Analysing this data, it is apparent that the offshore hydrocarbons cake just keeps on getting bigger.

Since 1993, world combined offshore oil and gas production has increased by 58%, to 43.7m boepd in 2013; and between 2013 and 2023, it is forecast to increase by a further 35%, to 58.9m barrels oil equivalent per day (boepd). While oil is playing its part in this, gas is proving an even more potent rising agent in the offshore mix, of which it is taking an increasing share.

Measuring the Ingredients

As the Graph of the Month shows, growth rates for offshore oil and gas production have moved more or less in line y-o-y, with gas consistently ahead of oil as hitherto undeveloped historical offshore gas discoveries are brought onstream. While offshore gas production grew with a 3.8% CAGR from 1993 to 2013, oil exhibited a 1.4% CAGR. The spread between gas and oil production is forecast to continue 2013-23, with gas and oil production CAGRs of 4.2% and 2.0% respectively. It is thus expected that offshore gas production will almost achieve parity in volume terms with offshore oil by 2023, accounting for over 49% of offshore hydrocarbons output (versus 32% in 1993).

Energy Hunger

The strength of gas in the offshore production mix in part reflects faster historical and anticipated growth in gas demand. Since 2009, oil demand growth has stagnated in OECD countries whereas gas demand growth has remained firm, averaging 3.0% p.a. 2010-13 with a rate of 2.1% projected for 2014. In non-OECD countries, gas demand growth averaged 4.7% over the 2010-13 period, compared to 3.9% for oil demand. Similarly, 2014 demand growth is forecast at 3.7% for gas and 2.7% for oil. As non-OECD countries continue to industrialise, demand growth for natural gas is likely to remain firm.

Let Them Eat Cake

Given this scenario, it is likely shale gas will meet only a portion of future demand. Conventional gas will still have a role in feeding world energy hunger, and the offshore gas element of this increasingly so. In 2013, 30% of world natural gas production was offshore; in 2023 this is forecast to reach 36%. Accordingly, the offshore gas field investment outlook is positive. Offshore field operators are initiating schemes to utilise associated gas at mature oilfields. Moreover, development of offshore gas fields is increasingly perceived as economic. Gas fields account for 51% of fields under development and 48% of undeveloped offshore discoveries.

More so than oil, offshore gas growth is driven by mega-projects. Current examples include nine South Pars phases off Iran, Leviathan off Israel and Shah Deniz II in the Caspian, due onstream in 2015-17, 2017 and 2019. Major LNG projects planned offshore East Africa and Australia, entailing extensive subsea production systems and deployment of the world’s first floating liquefied natural gas (FLNG) vessels (like Shell’s “Prelude”), are also responsible much of the forecast growth in offshore gas. All in all then, gas looks to be quite a tasty slice of the offshore cake. Bon appétit!

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OIMT02The 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.