FLNG market bursts back to life
Economic growth and global concerns over energy security are reigniting the demand for gas. Today, the FLNG industry is moving into a ‘second wave’ of developments, with the market opening to a greater number of participants. Full of complexities and intricate relationships, the FLNG market can be difficult for new players to navigate. For instance, as more FLNG units become operational we see project structures and financing more akin to the well-established FPSO sector. This includes a move to syndicated project financing, construction financing and/or leaseback structures such as Golar’s Hilli Episevo unit. To help shed light on this transforming market we’ve teamed-up with renowned naval architect and Director at Wison Offshore & Marine (USA), Martin A. Hruska, to share some of his 25+ years of experience and insight. “Floating liquefaction or FLNG has been around for a while, and initial challenges facing the FLNG sector were typically technical. Today, however, challenges are more commercial and financial in nature. FLNG development has also slowed in the last few years due to an over-supply of LNG, but there is good news on the horizon. Looking ahead”, Martin Hruska, Director-Floating Facilities Solutions Group at Wison Offshore & Marine (USA) explains, “market projections indicate that with the continued increase in demand for natural gas from growth countries such as, India and China, the pendulum is set to swing by the early 2020’s.” He also warns that, “with the oil & gas industry trying to recover from the down-turn, it’s critical to remember that development of these projects must be initiated early on so that future demand can be satisfied in a timely manner.” Westwood’s own analysis of sanctioned and upcoming projects supports this prediction too, with global FLNG capital expenditure (Capex) projected to total $52.8 billion (bn) over the 2019-2024 period. Furthermore, as LNG exports take a foothold in the US, investment in floating liquefaction facilities in North America will play a pivotal role in global FLNG expenditure over the forecast, accounting for 45% of expenditure. A combination of drivers, including perceived technological maturity, an improved macroeconomic outlook, and cost reduction in the supply chain, will support an increase in project sanctioning over the next 24 months. With a second wave of developments on the horizon and the market opening-up to a greater number of participants, a new paradigm is being created. Martin Hruska comments, “cost control must be in place for projects to take FID and move forward. Therefore, the current trend suggests that the possibility of another costly large scale FLNG is unlikely. This new paradigm creates an opportunity for smaller, less expensive, focused solutions to succeed.” Wison’s forward-thinking philosophy, has made it a world leader in designing and building small to mid-scale facilities. “FLNG will continue to have a place in gas monetisation and LNG production around the world either in pure gas plays, with associated gas from oil field development, or with at-shore pipeline gas production for export”, predicts Hruska, “and Wison is well positioned to play a significant role in the development of these projects.” Proven designs or innovations? Several close-to-shore large capacity FLNG units are currently under consideration. We asked Martin Hruska whether operators have an appetite for innovation. He argues that, “with regard to acceptance of new technology, the expectation was for projects to be designed using proven concepts, employ proven technology and be executed by entities who are either experienced or large enough to provide the necessary guarantees to make the projects operational. “Today, with increased scrutiny on the bottom line, we find that even the oil majors are re-tooling how they view projects from concept to execution. Everyone is looking at ways to reduce cost while maintaining safety and reliability. In that vein, we do see a little more openness towards employing new technology, however, it is typically done on a smaller scale. “Also, the majors, who used to acquire assets are now pushing the risk to others and are approaching projects from a leasing model perspective. The catch remains with the lenders, so if a project requires financing, the push to utilise proven technology remains quite strong.” Opportunity drives innovation Wison saw very early on that many of the larger projects were facing difficulties moving forward and identified an opportunity in the small to mid-scale, near shore and at-shore market. By designing and building a low cost FLNG barge for a European client, Wison was able to offer a financeable solution that provided smaller, more manageable, parcels of LNG to the market. Using this model, Wison constructed, tested and delivered a 0.5 MTPA FLNG barge in 2017, the Caribbean FLNG. It was the first floating platform that produced LNG in the world, beating both Petronas and Shell. Today, there are four FLNG units in existence – Caribbean FLNG, Prelude, PFLNG Satu, and Hilli Episeyo. Presently, ENI has taken FID on the Coral FLNG for Mozambique and there continue to be a handful of FLNG projects in development around the world in various stages, including Canada, Eastern Mediterranean, Africa and US Gulf. FLNG platforms are complex. “However, the challenges of building a hull, containment system and process topside is not that challenging. It is primarily a function of engineering and money. The most challenging aspect of an FLNG project”, according to Hruska, “is regulatory and commercial. You can have the best technology in the world, but if you cannot tie up the LNG value chain from upstream to downstream, the project is dead. “If I were to list the greatest challenges for an FLNG project they would include gas supply, offtake, financing and permitting. “What is also interesting is the continued promotion and development of floating liquefaction projects that at face value will have a difficult time being realized. During the past decade, FLNG concepts have evolved. Numerous studies by major oil & gas companies as well as smaller independents, have concluded that the current model is flawed. The price tags of the existing FLNG projects cannot be sustained going forward.” It’s an exciting time for the industry which is changing, and the key driver for the use of floating units remains the short lead-time from sanction to operation and consequently, tendering activity for FSRUs is expected to remain strong over the 2019-2024 period.