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RISE OF THE FSRU AND THE LNG MARKET OUTLOOK 2016
PART 1
he Global LNG Market:
T
Trends and Future Outlook
PART 2
he Essential Steps
T
to FSRU Project Success:
Interview with Stephen Thompson
LNG and Natural Gas Projects At
Poten & Partners Australia
PART 3
Rise of the FSRU
PART 4
Upcoming FSRU Orders Map
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RISE OF THE FSRU AND THE LNG MARKET OUTLOOK 2016
Editors Note: This is an edited version of the article. The original can be viewed here.
Low LNG prices over the last two years have created a challenging business environment for new projects.
According to the recent KPMG report Uncharted Waters: LNG Demand in a Transforming Industry, global
LNG demand will face many uncertainties in the future, including:
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RISE OF THE FSRU AND THE LNG MARKET OUTLOOK 2016
At present, the LNG market is transforming into a global united commodity market with increasing liquidity and competition. The effects of this change can be
seen by the decline in LNG prices, more than 50 per cent in some cases, in a period of only three years between 20132016:
WORLD LNG ESTIMATED JANUARY 2013 LANDED PRICES WORLD LNG ESTIMATED JANUARY 2016 LANDED PRICES
$4.65
$5.19
United 56%
Kingdom
$10.47 Canaport
United Kingdom $4.38
Belgium $5.75
$10.12 $4.68 $5.75
Belgium $15.38 $15.38 Cove Point Korea Japan
$4.68 $5.23
Korea Japan Spain
Cove Point $11.41
$5.60
63%
Spain $15.00 $2.13
$5.69 Lake Charles China
$3.29 China Altamira
$3.86 Lake Charles $5.70
Altamira $13.00 India 63%
India
$5.69
$12.10 Rio De 53%
Rio De Janeiro Janeiro
$5.73
$13.20 Bahia Blanca
Bahia
Blanca
Source: World LNG prices January 2013, USA Federal Energy Regulatory Commission (FERC) Source: World LNG prices January 2016, USA Federal Energy Regulatory Commission (FERC)
8.9%
reach 270 mt in 2016, up by 22 mt (8.9%)
compared with 2015.
INCREASE
2015 2016
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RISE OF THE FSRU AND THE LNG MARKET OUTLOOK 2016
Whilst the current low LNG price and near-term uncertainties will make the 60
next five years challenging, beyond that the future is looking very bright
according to predictions made by Exxon Mobil in their report The Outlook
for Energy: A View to 2040: 40
Global demand for natural gas will increase by 50% from 2014 to 2040 20
Natural gas is projected to cover the 40% of the future global energy
demand until 2040
LNG exports expected to triple globally by 2040 China Japan South Korea Taiwan
Leading up to 2020, the International Energy Agency predicts that inter-regional gas trade will expand by 40% between 2014 2020, surpassing 780 billion cubic metres. LNG will
account for 65% of the increase. Initially this increase will mainly be generated by Europe, China, and non-OECD countries in Asia:
Source:
International Energy
LNG Pipeline LNG Pipeline Agency (IEA)
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RISE OF THE FSRU AND THE LNG MARKET OUTLOOK 2016
Beyond 2020, the growth in LNG demand will shift to new emerging markets: Of this growth, most of the recent entrants will utilise floating LNG storage and regasification
unit (FSRU) solutions. This is particularly because they allow LNG to be imported quicker and
LNG DEMAND BY COUNTRY FOR RECENT AND LIKELY more cheaply than using a land based LNG import terminal, making them cost-effective for
smaller or seasonal markets. As a result, the future outlook for these vessels is promising:
MARKET ENTRANTS
120
2020
8.0%
120 100 8.0%
6.4%
5.3%
4.7%
2025 4.5%
80 3.3%
83
2.8%
60 1.5%
0.8%
2030
1 Egypt (Zohr) and Argentina (Unconventional
34 gas), both of which currently import LNG but are 40
not forecast to do so in 2030 due to recovering
domestic production
20
Recent Market Entrants Likely Emerging Markets
Indonesia Kuwait Chile Bangladesh Bahrain
Singapore Puerto Rico Thailand Vietnam Ghana 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Pakistan Dominican Malaysia Philippines Morocco
Egypt Republic Poland Cuba South Africa Floating regastification share Floating regastification Onshore regastification
Jordan Argentina Uruguay El Salvador of total
UAE Mexico
Source: Floating LNG Regasification is used to meet rising natural gas demand in smaller markets,
Source: New LNG markets key to growth, Energy Insights U.S. Energy Information Administration
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RISE OF THE FSRU AND THE LNG MARKET OUTLOOK 2016
FRANCE CHINA
Dunkirk
10.0 mtpa Yuedong/Jieyang
2.0 mtpa
Beihai
3.0 mtpa
Dalian Expansion
3.0 mtpa
Guangdong Dapeng
2.3 mtpa
Expansion
Diefu
4.0 mtpa
COLOMBIA GHANA
Cartagena*
3.0 mtpa
Tema*
3.8 mtpa
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RISE OF THE FSRU AND THE LNG MARKET OUTLOOK 2016
USA CANADA
Sabine Pass Train 6
4.5 mtpa Pacific North West
12.0 mtpa
Corpus Christi Train 3
4.5 mtpa Woodfibre
2.1 mtpa
Magnolia Trains 1 to 4 8.0 mtpa
LNG Canada
12.0 mtpa
Jordan Cove
6.0 mtpa Douglas Channel
0.6 mtpa
Elba Island
2.5 mtpa LNG
Lake Charles
15.0 mtpa Goldboro LNG
5.0 mtpa
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RISE OF THE FSRU AND THE LNG MARKET OUTLOOK 2016
GIVEN THE CURRENT LOW LNG PRICE, WHAT ARE SEVERAL OF THE CRUCIAL STEPS TO
SUCCESSFULLY EXECUTING A FSRU PROJECT?
Firstly its important to say that the current low LNG price is an opportunity rather than a problem. At present, you can go out and
get your LNG supply under pretty favourable terms, meaning you can lock in the supply part, which is really critical. If you think
about the delivery cost of LNG to market and the cost of regasification, securing your LNG supply chain is the largest and most
important component in regasification. So getting LNG and getting it under favourable terms is a huge advantage at the moment.
On the other hand, constructing the onshore facilities and the FSRU itself is not as challenging. The other crucial steps include,
getting your powerplant built on time (if thats what it is), getting a pipeline in place to get the gas there and getting the
environmental and regulatory approvals in place. Lastly its also important to find a strong sponsor that knows how to handle these
issues and has sufficient financial and government backing to get the job done.
WHAT ARE SOME OF THE ROAD BUMPS THAT CAN DELAY OR DERAIL A PROJECT?
One big road bump has to do with pricing in the domestic market. When prices are subsidised then its not possible to bring in the
LNG at full cost, so finding a way to cover the shortfall is often the make or break of these kind of projects. Other problems can
include getting the approvals, not just for the FSRU, but also for the onshore pipeline and the offshore leg. The devil is in the detail
and there needs to be a lot of analysis around liabilities in terms of getting the project onstream and putting in the installations.
Furthermore, financial guarantees can really delay a project, particularly around these issues.
FSRUs have the advantage of being a floating component which are becoming increasing standardised, meaning you are in a
good position to control costs. The issues can arise however when it comes to the onshore installations because you are not
building them in a shipyard and there is less standardised work, so there is some uncertainty.
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RISE OF THE FSRU AND THE LNG MARKET OUTLOOK 2016
The thing that happens most often is that the sponsor of the FSRU project is in a hurry have experts who can make judgements about how fast you can do these things,
and they want to move from the idea of the FSRU through the construction phase especially when it comes to pushing back against strong political pressures.
as fast as they possibly can. This impacts the ability to de-risk the fixed marine and
adjacent onshore installations. If you try to curtail the information collection stages The nature of the FSRU market industry is that it tends to attract utilities and national
and go right to contracting the work, and you also expect the counterparty to take the oil companies who are not familiar with the LNG industry. They are earlier along the
risk of cost of project overruns, you end up with a classic situation where there can be learning curve. If you look at the FPSO sector for a comparison, the one big lesson
conflicts in negotiations, delays and possibly unhappy outcomes. we can draw is that you must be very, very careful before you try to innovate and step
out from tested technology solutions. The more you step out, the greater risk of cost
overruns.
FSRUS HAVE ONLY BEEN AROUND SINCE 2008, HAVE
THERE BEEN ANY LESSONS LEARNED IN PROJECT I think there is an inevitable learning curve for a large number of FSRU project
EXECUTION SINCE THEN? sponsors, because in the past they simply have not worked with LNG. Previously,
power will have been generated by domestic gas or imported by pipeline, which has
The main lesson learned has been the fact that we have moved on from the first proven successful, but now as these players move to the LNG space, their experience,
generation LNG carrier conversions to new build large scale vessels. The origins of processes and business models that they were previously used to are not necessarily
the FSRU industry revolved around securing the carriers cheaply and there were real appropriate for
downsides associated with that approach, including the logistics of getting the cargo LNG ventures.
delivered and storage capacity available. So I think a big lesson learned is not just to
consider the cheapest option and instead really think about the project lifecycle costs, The bottom line is that national energy companies need to be mindful of the potential
the operability costs and reliability costs associated with your choices. FSRU project pitfalls we have seen already. However judging by the rapid growth of
the FSRU market, we expect the occurrence of these kinds of issues to increase rather
Another factor that makes FSRU solutions attractive is that they can be constructed than decrease, especially as FSRUs are adopted by countries that do not have an
relatively quickly. However if you try to do things too quickly then you may inadvertently existing domestic gas industry.
create errors and delays leading to cost escalation. Its for this reason you need to
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RISE OF THE FSRU AND THE LNG MARKET OUTLOOK 2016
David Boggs is the Managing Director and founder of Energy Maritime Associates, which publishes market
leading reports on the floating production industry, including developments requiring FPSOs, FLNGs, FSRUs,
Semis, Spars, TLPs, MOPUs, and FSOs. David has 15 years experience in the Offshore Oil & Gas Industry
including extensive involvement in numerous FSO and FPSO projects.
FSRU contracts have been the bright light in the floating production sector. The first dedicated FSRUs began operation in 2008 and the FSRU UNITS IN
fleet has grown quickly in size. By 2011 there were seven units installed and this doubled to fourteen units by 2014. Energy Maritime YEAR
OPERATION
Associates forecasts the fleet could grow by an additional 45 units per year through to at least 2020.
2008 2
In addition, there has also been use of an LNG FSO together with onshore or barge based regas facilities. There are currently three LNG
FSOs in operation with two more on order. 2009 4
Five of the first six FSRUs were based on converted LNG tankers. However, since 2010, all FSRU orders have been purpose-built units. 2011 7
Five of these units were initially built as LNG regas vessels and are now used as permanent FSRUs.
2012 7
Recently there has been renewed focus on conversions. As the LNG shipping market has deteriorated, older LNG carriers are becoming
harder to employ and are therefore seeking alternate use as FSRUs and LNG FSOs. Currently there is an oversupply of LNG carriers, 2013 9
with at least ten 1970s and 1980s-built vessels laid-up with potential plans for conversion to LNG FSOs or FSRUs. 2014 14
In addition, conversion shipyards in Asia, particularly in China and Singapore have capacity for FSRU conversion projects. At the same 2015 18
time, the Korean shipyards that constructed all the new FSRU units are struggling financially.
2016 22
THE END OF SPECULATIVE ORDERS?
2017 27
13 of the 17 newbuilt units were ordered on speculation and nine have found contracts by delivery, or shortly thereafter. Four FSRUs
remain on order without a committed contract. However, as these units are ordered before the project requirements are known, the FSRU 2018 35
may not be a good match with the project. According to Excellerate, a speculative FSRU newbuild priced at $250-300 million USD may
be too large for half the projects out there and too small for one-quarter of them. 2020 40
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RISE OF THE FSRU AND THE LNG MARKET OUTLOOK 2016
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RISE OF THE FSRU AND THE LNG MARKET OUTLOOK 2016
DO AG
W EN
N D
LO A
AD
n 6-7 September 2016
n Amara Sanctuary Resort Sentosa, Singapore
FEATURING
Stephen Thompson Parth Jindal
Manager LNG and Natural Gas, Managing Director,
Poten & Partners Australia Hegh LNG
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