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LNG World Shipping

FLNG projects are challenged to float investor interest

Thu 31 Jan 2019 by John Snyder

FLNG projects are challenged to float investor interest

To remain competitive and attractive to investors, Floating LNG (FLNG) projects will need further cost reductions and innovations similar to what has occurred over the last few years across the oil and gas industry.

The extent of the challenge was brought home to me in a recent editorial authored by Wood Mackenzie gas and LNG analyst Liam Kelleher.

Regular readers of LNG World Shipping will know that floating LNG projects gained favour in the LNG supply market because they were designed to lower capital investment and quickly monetise the development of gas resources in remote and sensitive offshore or near-shore locations. Three of the seven projects that took final investment decisions between 2015 and 2018 were in fact FLNG projects.

However, a drastic reduction in E&P over the last few years because of the oil price crash has yielded few significant gas discoveries. Moreover, cost overruns at FLNG projects, such as Shell’s Prelude and Petronas’ PFLNG cast a shadow over Coral FLNG and the latest project to take final investment decisions— Tortue FLNG —both currently under construction.

Other FLNG projects have struggled to attract investors, buyers and financing. Prospects for the development of the Fortuna FLNG project off of Equatorial Guinea have dimmed considerably.

The lack of economy of scale as Mr Kelleher pointed out in his editorial – and I can only agree – is likely (for now at least) to limit FLNG projects to small scale and remote developments. Such developments typically require the FLNG facility to be integrated with the upstream section of the project, which again increases project complexity and cost. This trend can be expected to continue with high-capacity projects in the US, Russia, Qatar and Mozambique looking to take final investment decisions.

 

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