As Australia ramps up its LNG exports and as the US switches from importing to exporting, analysts expect a resulting supply glut – and a new incentive to new players to import this ever-cheaper commodity.
Consultancy Wood Mackenzie estimates that new projects will deliver a combined 125 million tonnes a year (mta) to market, including 10-17 mta this year. Meanwhile, the cost of buying LNG on the spot market has fallen by half in the last 12 months.
That spells bad news for energy companies’ returns on investment – but for prospective buyers, there is more than enough cheap gas coming to market and a surplus of idle LNG carriers to deliver or store it. The International Gas Union (IGU) predicts an increase in LNG-importing countries from fewer than 30 two years ago to nearly 50 by 2025.
Building land-based import terminals can be expensive and time-consuming, and can run into regulatory obstacles. So, for many prospective LNG buyers, floating storage and regasification units (FSRUs) present a cheap, quick and straightforward alternative, at around US$300 million to build, or as little as US$80 million to convert, according to broker Poten & Partners.
Last year, new importers Egypt, Pakistan and Jordan opted for FSRUs – and the trend looks set to gather momentum.
According to the annual report of the 2015 International Group of Liquefied Natural Gas Importers (GIIGNL), the live FSRU fleet comprised 23 vessels with a combined capacity at year-end of nearly 3.5 million m³. The orderbook stands at eight vessels, three to be delivered this year and five next year.
LNG World Shipping has identified nearly 30 operating and confirmed FSRU-based projects worldwide and nearly 40 at the proposal stage.
US-based Excelerate owns nine FSRUs, has an LNG carrier it deploys for storage and holds four options at Daewoo Shipbuilding and Marine Engineering (DSME). Golar LNG has seven FSRUs, a converted LNGC acting as a floating storage unit (FSU) off Jamaica and takes delivery of its eighth – unfixed – FSRU next year.
Norway-based Höegh LNG has six FSRUs on the water, another fixed to the Penco-Lirquen import project in Chile and one unfixed FSRU, all part of its plans to expand this fleet to at least 12 by 2019. The Chile project has gained new urgency now that Höegh has decided not to enter the floating LNG (FLNG) production segment.
Elsewhere, a fourth established player, OLT, is importing LNG to Italy via an FSRU.
New entrants are already circling, however. BW Gas entered the market last year, when it dispatched the 170,000m³ BW Singapore to Egypt, chartered as a second floating import terminal to EGAS.
BW has now exercised its option on a second FSRU newbuilding but where it will deploy Hull 2118, the company has yet to say. The LNG transporter has been linked to a plan by UK-backed First Gas to station an FSRU off Yuzhny in Ukraine.
And now at least three new players are about to enter the market.
Mitsui OSK takes delivery this year of the largest FSRU to hit the water, at 263,000m³. Hull 2419 will produce up to 4 mta when it replaces the 145,000m³ Höegh LNG-owned GDF Suez Neptune off Uruguay in November.
Next year, Gazprom will take delivery of the world’s first ice-class FSRU, having commissioned the 174,000m³ newbuilding to import up to 3.6 mta through Russia’s Baltic enclave at Kaliningrad.
Teekay LNG has ordered a floating storage unit (FSU) for the Bahrain LNG build-own-operate-transfer (BOOT) joint venture with Samsung C&T and Gulf Investment Corp (GIC). It is converting ME-GI engine LNG carrier Hull 2461 into a 174,000m³ FSU to be moored off Hidd for 20 years.
Teekay has also been linked to talks with India’s Swan Energy to station a 5 mta FSRU off Pipavav in Gujarat.
In a second proposed Gujarat import project at Jafarabad, Belgium-based Exmar, which has suffered setbacks to its FLNG ambitions this year, is negotiating with Swan Energy to supply a 4.5 mta FSRU.
The energy-hungry Indian subcontinent is emerging as a prospective FSRU hotspot, with at least 11 such projects under discussion, from Gwadar in Pakistan’s Baluchistan region to Moheshkhali Island in the far south of Bangladesh.
Monaco-based GasLog furthered its plans to enter the FSRU space by hiring Bruno Larsen in March to head this business. He will present his growth strategy to the board in May.
Other reports have linked China National Offshore Oil Corp (CNOOC) and other shipping and energy compatriots to the FSRU market. Poten says shipowners there are “looking at buying old carriers for conversion and chartering them out to city gas distributors, given attractively low valuations of US$18-20 million”.
It continues: “Converted FSRUs are attractive to independent Chinese LNG importers that are at the mercy of the country’s three major importers, which can deny third-party deliveries, even when a tanker is en route, because of storage constraints.
“FSRUs could [also] be competitive against high tolling fees for third-party access, currently sought by state-owned onshore terminal operators.”
The consensus holds that FSRU projects will grow significantly in number over the next few years – but how fast? Excelerate Energy chief executive officer Rob Bryngelson suggests a rate of four or five projects a year, a mix of smaller and larger FSRUs.
Consultancy Douglas-Westwood predicts a near doubling of the world fleet to 2022, growth in Asia and western Europe in particular increasing the number to 55 vessels. The LNG World Shipping FSRU project list shows the Indian subcontinent as generating most interest in new ventures, with at least nine projects under discussion in India, one new venture in Pakistan and one in Bangladesh.
Otherwise, the global spread of projects is even, with six proposed ventures apiece in Asia, Africa, Latin America and Europe. Those of particular interest in the coming months include Croatia, which is about to decide whether to develop Krk LNG as a land-based or FSRU-based project.
In Brazil, Golar LNG is moving into the midstream LNG market. It has the exclusive right to supply an FSRU to a new combined-cycle power plant there in whose development it also has a stake.
Golar is likely to convert one of its tri-fuel diesel-electric (TFDE) newbuildings for that project. Chief executive Gary Smith has pledged to step up the company’s conversion programme to reduce Golar’s exposure to the “disappointing” spot market.
So which countries are likely to join the LNG-importers’ club next?
The top contenders include Chile, where Höegh will soon deliver Hull 2685 and Ghana, where West Africa Gas (WAGL) has chartered the 170,000m³ Golar Tundra on a five-year contract to 2021, with options.
In Bahrain, the Teekay-led FSU venture plans a 2018 start date, as do the Gazprom venture in Kaliningrad, the New Fortress Energy FSU project in Jamaica and the Swan Energy/Teekay LNG terminal in Pipavav.
At least one Indian project will come to market within the next two years, while in the UK, Excelerate has agreed to station an FSRU off Teesside and Port Meridian Energy plans to set up a 6 mta STL-buoy project in Morecambe Bay.
Watch this space.