Floating prospects

Laurentino Rangel, Poten & Partners

June 1, 2016

Laurentino Rangel, a consultant with Poten & Partners, provides an overview of current floating LNG projects around the globe.

PFLNG SATU. Photo from Petronas.

A floating LNG (FLNG) facility paves the way for opportunities to monetize gas resources from remote, marginal and stranded fields, which would otherwise be uneconomical to develop via conventional means. FLNG has advantages in areas with small gas reserves, expensive onshore port facilities, and/or constrained engineering, procurement and construction resources. It can also offer simplified approval processes while avoiding domestic gas commitments and unfavorable taxation.

Projects in Australia, Malaysia, Cameroon and Equatorial Guinea have chosen FLNG solutions to monetize fields, with projects under construction and first production due between 2016-2018.

However, current global oversupply is leading to tough times for all new developments. Over the past 18 months, projects with 150 MTPA of new onshore and floating liquefaction capacity have been shelved, due to a LNG market that is expected to remain oversupplied until well into the next decade, threatening a new cycle of tightness in the following years. In Q1 2016 alone, 60 MTPA of new capacity was canceled or delayed as oil and LNG prices continue to trade close to historic lows, with companies adjusting to the oversupply.

Prelude. Photo from Shell.

Shell proposed the world’s first FLNG development and is now building Prelude, 125mi off Australia’s northwest coast, and due to start up in 2017. Prelude will produce 3.6 MTPA of LNG, 0.4 MTPA of liquefied petroleum gas (LPG) and 1.3 MTPA of condensate, using one quarter of the size of an equivalent plant on land at a cost of US$12 billion.

Prelude’s hull and topsides are under construction at Geoje, South Korea, at the Samsung Heavy Industries (SHI) shipyard, which has one of the few dry docks in the world big enough to construct a facility of this size.

Petronas’ smaller PFLNG 1, to be based on the remote and otherwise stranded Kanowit field, offshore Sarawak, Malaysia, will be a major milestone as the world’s first operating FLNG unit once it starts production this year. The PFLNG SATU vessel was delivered from Daewoo Shipbuilding and Marine Engineering in Okpo, South Korea. It is designed for an operating capacity of 1.2 MTPA, measuring 365m-long and will have a crew of 145 onboard.

In 2014, Petronas also moved forward with PFLNG 2 for the Sabah development in Malaysia. In November 2015, the project reached a milestone with the keel laying ceremony at SHI, South Korea. Petronas originally scheduled it for delivery in 2018, but recently extended the delivery date to an unspecified time, with the potential that the 1.5 MTPA project may be mothballed, due to the current economic climate.

Prelude’s massive turret sets sail for South Korea. Photo from Shell.

In November 2015, Perenco and partner Societe Nationale des Hydrocarbures made a final investment decision (FID) on developing its Kribi fields offshore Cameroon using its GoFLNG technology. Golar LNG is converting the Moss-type LNG carrier Hilli to an FLNG unit at the Singapore Keppel Shipyard for the project. Golar will provide the floating LNG assets and technology, while oil and gas contractor Schlumberger will contribute upstream development services and capital. Golar LNG says the focus is on increasing it to a three-train operation over a longer-term charter.

Golar had options to convert two more vessels, the Gimi and Gandria LNG carriers, into FLNG facilities and exercised the options in 2015. Both vessels have secured contracts for Ophir’s 2.2 MTPA Fortuna project in Equatorial Guinea, with delivery expected in 2018 and 2019, respectfully. (Read more for an in-depth look at Ophir’s Fortuna FLNG project.) Golar plans to have five or more GoFLNG vessels operating by the end of the decade.

Hoegh LNG made a surprise announcement in February 2016, saying it would leave the FLNG sector to concentrate on floating storage and regasification units (FSRUs). Since 2007, the Norwegian company had been working to position itself as an FLNG player and took a $37- million writedown on its Q4 2015 earnings as result of its decision to abandon FLNG.

At the end of March 2016, Australia’s Woodside said it would indefinitely delay its 10.8 MTPA Browse FLNG project, which was expected to use three FLNG units. The company blamed an economic environment unsuitable for a major LNG investment. The announcement came a week after supermajor Shell and Japan’s Inpex said they would delay any investment decision on the 7.5 MTPA Abadi FLNG project in Indonesia until at least 2020. The decision came as the Indonesian government said it wanted the plant to be built onshore, which the project partners consider a more expensive option.

FLNG schemes account for four of Australia’s six shelved projects, with potential volumes totaling about 24 MTPA compared with about 13 MTPA for Australia’s canceled onshore capacity. It mirrors similar problems around the world, with half of all export developments — both onshore and FLNG — being canceled or delayed. Canceled FLNG projects amount to some 40 MTPA of capacity, dealing a significant blow to the progress of the nascent sector.

Golar Hilli. Photo from Keppel shipyard.

Some bright spots

Hope still remains for floating liquefaction, and such is the case with Iran. Iranian officials are negotiating with international companies to sign a contract with Iranian Offshore Oil Co. and Nogam Oil and Gas Co., a subsidiary of Bank Mellat, to build an FLNG and tap the associated gas capacity of the Forouzan oil field in southern Iran. So far, that gas has been burned off through flaring at a rate of 200 MMcf/d of gas.

In February of this year, Italy’s Eni reported that its plan to develop the 16 Tcf Coral gas discovery off Mozambique, in Area 4 of the prolific Rovuma basin, had been approved by Mozambique’s Council of Ministers. Eni called the plan’s approval a fundamental step toward FID. The plan for phase 1 development includes drilling and completing six subsea wells and building and installing a 3.4 MTPA FLNG facility. Eni aims to sell LNG from the facility to supermajor BP.


Both onshore and offshore liquefaction projects in Australia, Canada and the US, among others, have been scrapped, delayed or just quietly forgotten as developers shift priorities, cut development budgets, and cancel or delay FIDs as they try to weather the downturn in the commodity cycle at the expense of sanctioning new LNG developments, while maintaining dividends.

Together, Shell, Golar LNG, and Petronas have ordered seven FLNG vessels that can process a total of up to 13 MTPA. Exmar, which holds two FLNG options expiring at year-end at China’s Wison shipyard, must find a new home for its FLNG project. It was originally destined for Colombia but since Colombia’s gas outlook shifted to a need to import LNG by 2017, the FLNG unit is now homeless. The slowdown in making such long-term decisions based on relatively short-term factors could ultimately result in an excessively tight market within five years or so, with supply again trying to catch up with demand once existing production and that which is under construction is absorbed by consumers.

Laurentino Rangel is a Houston-based LNG and shipping analyst for Poten & Partners. He joined Poten in 2014, and has been involved in a number of LNG shipping studies, country specific natural gas balances for Latin American countries, and EPC monitoring of a Gulf Coast export facility on behalf of the lenders.

Read more:

A small Fortuna