The investment case for floating LNG

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Floating liquefied natural gas (FLNG) technology is making a comeback as soaring natural gas prices and the focus on shifting from coal to gas in the world’s largest gas import market, Asia, appear have renewed the demand for offshore LNG installations to be operated remotely or currently stranded gas assets. FLNG represents only a small part of the growing global LNG market, accounting for around 5% of it. Yet record LNG prices in recent months, expectations of steadily increasing gas demand – especially in Asia – for decades, and efforts to reduce emissions from power generation are giving new life. floating LNG technology.

FLNG projects have a much lower capacity than onshore liquefaction facilities, but they can be flexible and can travel to various locations to process gas at remote offshore sites or process gas from oil projects that is sometimes flared.

Certain technical challenges also exist with mobile LNG units. Yet FLNG projects have lower capital investment costs than huge onshore factories and offer faster returns on investment at a time when companies are sticking to capital discipline given the increased volatility on the market. commodity markets.

Before the pandemic, FLNG projects had difficulty securing the necessary partners, buyers and financing against huge, high-capacity projects, Wood Mackenzie said in 2019.

“The lack of economies of scale is likely to limit FLNG projects to small-scale and remote developments, as they compete for buyers, financers and partners in a vibrant LNG market. However, FLNG has established itself as a credible development option and – with greater experience and lower costs – other projects can quickly emerge in otherwise calm FLNG FID prospects, ”WoodMac said a year earlier. that COVID does disrupt all commodity markets and demand projections.

LNG demand is set for continued growth

The pandemic has not reversed predictions that demand for LNG will continue to grow as electricity and industrial demand increases and countries seek to use more gas in the power mix at the expense of coal, particularly on the grid. fastest growing gas market, Asia.

Related: Could the World Run on Nitrogen? Asia’s demand for natural gas is expected to nearly double by 2050, Wood Mackenzie said last week, noting that the region needs incentives and investments in domestic supply if it is to avert the next crisis. gas and ensure its energy security.

At the same time, spot LNG prices in Asia are holding close to October’s highs of $ 36.10 per million British thermal units (MMBtu) last week, sources in the UK told Reuters. sector.

FLNG is popular again

Thanks to high prices and demand, as well as the advantages of gas over coal in terms of emissions in power generation, floating LNG projects are again attractive and could play an important role in filling a gap. niche in the LNG market for years to come, analysts tell Marcy de Luna of the Houston Chronicle.

“There appears to be a resurgence of interest in FLNGs,” Kaushal Ramesh, Rystad Energy analyst, told the Houston Chronicle.

Currently, there are five operational FLNG projects around the world, and at least three more are expected to enter service within the next two years. FLNG developers are optimistic that current high LNG prices could provide a boost to potential new floating projects.

Shell’s prelude off Western Australia became the first operational FLNG facility in 2019, although it took Shell and its partners eight years to bring it online.

Golar LNG, which operates the Hilli Episeyo FLNG off Cameroon, put the project into production in three years. Earlier this year, Golar LNG, Perenco Cameroon and the Cameroonian state-owned Société Nationale des Hydrocarbons (SNH) decided to increase the use of the FLNG unit from 200,000 tonnes to 1.4 million tonnes in 2022. .

In the third quarter results release in November, Golar LNG said that “the current strength of LNG prices and favorable pricing outlook further increase the attractiveness of our FLNG solutions. It’s a boost for potential new FLNG projects.

Other FLNGs to come within two years

Golar LNG is also working on a FLNG project for BP, FLNG Gimi, which should be deployed off Mauritania. The unit is now about two years away from the planned start date of the 20-year lease and operation agreement with BP, Golar said this month.

Eni plans to start production of the Coral-Sul FLNG, which is part of the Coral South project in the Rovuma basin off Mozambique, in the second half of 2022, the Italian major said in November.

New Fortress Energy announced earlier this year a final investment decision in what it calls “Fast LNG,” a modular liquefaction plant with a capacity of 1.4 million tonnes per year.

“This technology can be installed quickly and inexpensively to access low-cost stranded natural gas at a fixed price to meet the global demand for more affordable, reliable and cleaner energy. Along with our great partners, we look forward to deploying one of the cheapest LNG production facilities in the world by 2022, ”said Wes Edens, Managing Director and President of NFE, in March 2021.

Related: November Oil Nightmare As Prices Dip Again

In the United States, Delfin LNG is seeking to develop export projects using LNG technology floating off Louisiana. Delfin asked the Federal Energy Regulatory Commission (FERC) in July for an extension until September 2022 of the permit to construct pipelines to connect to offshore FLNGs, which in total would produce 13 million tonnes per year of LNG.

“Delfin says economic conditions are recovering from the global coronavirus pandemic and the spot and short-term LNG market have improved dramatically. Delfin sees these developments as a precursor to an improved longer-term market, which it believes will support long-term LNG off-take contracts, ”the company said in its request.

Floating LNG projects have a much smaller capacity than onshore plants, but they could be used to tap remote gas assets that are not profitable to develop with connections to onshore liquefaction facilities.

By Tsvetana Paraskova for OilUSD

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