Huge Opportunities Ahead for Floating LNG

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Wednesday, November 26th, 2014
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Floating technology has enormous potential to transform liquefied natural gas markets in Australia and elsewhere, a new report has found.

The first four vessels are set to go into operation between now and the end of 2018, including Shell’s 488-metre long Prelude LNG Facility, the largest floating structure ever launched, which will extract and process 5.3 million tonnes of liquids per annum from the Browse Basin off Western Australia.

International accounting and consulting firm KPMG predicted that if early projects go well, the technology would emerge as “a key pillar of a 2020s LNG business that looks quite different from that of today.”

“There are two scenarios for the future development of floating LNG,” KPMG says in its report. “It may become a niche technology that is applied by a few companies to solve specific problems, with land-based configurations remaining the default. This could happen if the first FLNG plants encounter cost or operational difficulties or if land-based costs fall as the current construction boom ebbs.”

“However, in the second scenario, if the first few projects are successful, FLNG can emerge as a standard approach that eases the industry’s problems with cost inflation and opens it up to a much wider range of fields and companies.”

Initially thought of in the 1970s, FLNG has generated growing levels of interest in recent years amid massive cost blowouts on the construction of onshore facilities.

Though no FLNG facilities are yet in operation (the first one is set to enter service in Columbia next year), KPMG says as many as 44 could be in place by 2022 (22 firm and probable; a further 22 ‘possible’).

Of these, 15 (7 firm or probable) are in Australia off the north-west coast of WA, including Prelude as well a 495 metre long, 75 metre wide facility which is expected to be the world’s biggest at BHP Billiton and Exxon Mobil’s Scarborough field.

KPMG says potential benefits of FLNG include not only the ability to unlock smaller and more remote fields but also reduced environmental impact through avoiding the need for seabed pipelines, dredging for jetties and onshore roads; faster, cheaper and simpler project construction and elimination of the need to maintain a skilled workforce on remote construction sites.

The cost cannot be understated: the price tag for Chevron’s (onshore) Gorgon project on Barrow Island has blown out from $37 billion to $54 billion, and research firm Douglas Westawood reckons Australia could miss out on as many as $97 billion worth of LNG investments if the construction sector is unable to get costs under control.

From a technical perspective, offshore LNG requires specialised containment systems to prevent sloshing, topside modules including gas pre-treatment and liquefaction and safe systems for offloading cryogenic liquid in potentially difficult sea conditions including the possible development of flexible hoses. Weather conditions, too, impact installation, operation and maintenance schedules.

Moreover, experience with FSPO units used for the offshore production and processing of hydrocarbons and storage of oil suggests cost control could be an issue, though costs are lower in many cases compared with onshore facilities; one recent study quoted in Offshore Magazine which involved a study of nine examples showed that on average these facilities ran 38 per cent over budget and were delivered 16 months late.

Furthermore, FLNG entails political risk in its own right as well as the need for careful stakeholder management.

Woodside’s Sunrise project in the Joint Development Area between Timor Leste using FLNG as a preferred option, for example, has stalled as the Timorese government pushes instead for an onshore facility which it believes would generate more local employment opportunities.

Elsewhere, Shell has been at pains to stress its percentage of annual operating costs with regard to its Prelude project to be spent in Australia (70 per cent) as well as local and indigenous friendly supplier policies amid complaints from the Western Australian government about the loss of tax revenues and construction jobs compared with a previous and now discarded onshore development option at James Price Point.

Over the long term, KPMG says much of FLNG’s fortunes will depend on the success or otherwise of early projects.

“The nascent FLNG industry is entering a critical period,” the report states. “With the world’s first four FLNG project due to enter service between 2015 and 2018, the front-runners, as well as other likely proponents, will be watching closely.”

“They will be keen to see whether these plants are delivered on-time and on-budget – and whether they perform well – with no serious design or operational flaws.”

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