As new US and Australian LNG production creates more supply than traditional buyers can absorb, new markets are emerging all over the world. But which ones present the strongest opportunities for shipowners? Karen Thomas reports
Cheap gas has prompted many countries to look seriously at LNG imports, in some cases as a move towards cleaner-burning fuels and in many others to fuel remote electricity-producing plants for communities beyond the national power grid.
Just five countries have joined the LNG-importers’ club so far this year. Poland opened its long-awaited deepsea import terminal at Swijnouscie in June as part of a move to cut its dependence on piped gas from Russia. The other four nations have launched small-scale import projects.
Jamaica and Indonesia have chartered floating storage units (FSUs), off Montego Bay and Bali, respectively, to support gas-to-power projects. Barbados has started to import small quantities of LNG by barge from Florida in the US, and this autumn Finland opened a small-scale import terminal at Pori.
The next round of new importers will almost certainly include Puerto Rico, Ghana, Bahrain and Bangladesh, which all plan to employ either floating storage and regasification units (FSRUs) or FSUs. This is becoming a common strategy in many new LNG markets.
“In these markets, investors are often cautious,” says Douglas Westwood analyst Mark Adeosun. “What we are seeing is that many of these new markets are being built around FSRUs. For investors, they ensure that if things don’t go well, they can move the vessel elsewhere. The technology is available and is well-known.”
When LNG World Shipping mapped the world’s new and planned FSRU projects this summer, there was a clear concentration in Latin America and the Indian subcontinent.
India, alone, is looking at up to 10 FSRU-based projects but Southeast Asia, sub-Saharan Africa and the Middle East will also drive new LNG demand.
Wood Mackenzie’s recent study of proposed LNG-to-power projects found more than 30, again clustered in the Caribbean, southeast Asia and west and southern Africa, as well as southern Europe and the eastern Mediterranean.
Meanwhile, BMI notes that sub-Saharan Africa will have the world’s fastest GDP growth to 2025. It predicts that this will drive new LNG demand as economic growth puts power-generation there under pressure.
Many African countries – particularly those that use hydropower, with its seasonal output – will turn to gas-fired power generation, BMI predicts. Describing sub-Saharan Africa as “a niche LNG destination”, the company sees Cote d’Ivoire, Ghana and Tanzania as the markets with the strongest import potential.
Other states with gas-to-power plans are South Africa, Cameroon – which also plans floating LNG projects – Namibia, Kenya and Ethiopia. However, BMI warns of significant risks or obstacles in these countries to growing LNG demand.
Ghana is pushing ahead with FSRU-based imports, although there are questions about where it will put the two floating vessels it plans. Golar LNG has chartered its 170,000m³ FSRU Golar Tundra, to West African Gas (WAGL), expected to enter service this summer. However, at the time of going to press Golar Tundra was at anchor outside Tema in Ghana as the project has been delayed.
Plans for a second FSRU at Tema are now in doubt, however. Quantum Power and Ghana National Petroleum (GNPC) may instead move the project to Takoradi, to support power projects in the west of the country. It is now unclear whether either project will meet its early 2017 start target.
But importing is not the only new LNG-shipping opportunity. Several developing countries are also well placed to become producers. That development has been even less straightforward as low oil and gas prices have made energy companies nervous about backing ventures in untried markets.
Of the 20 additional LNG trains and new production projects that had reached final investment decisions by August for a 2015-2020 start, eight are in the US, five in Australia, three – including two offshore ventures – are in Malaysia and two are in Indonesia.
Russia’s Yamal is the 19th new LNG venture. The 20th – and the only newcomer to exports – is Golar LNG’s floater in Cameroon, whose LNG-export ambitions have faced major challenges.
Sub-saharan Africa, the eastern Mediterranean, the Middle East and southeast Asia have sizeable reserves of gas that can be tapped and exported as LNG. But here, projects are progressing at a glacial pace.
Low oil and gas prices have cut returns on any new investment, and regulatory barriers and shortages of infrastructure present additional hurdles. All this can make bringing these new reserves to market a fraught exercise, particularly for floating LNG (FLNG) projects, a segment that is still largely untried.
At the time of going to press, work was progressing on Cameroon’s proposed floating project. Golar LNG is converting the LNG carrier Hilli into a 1.2 mta FLNG vessel. Singapore-based Keppel will deliver the converted ship in the new year. The project should begin production by 2019.
However, France-based Engie has halted its plan to develop a second Cameroon LNG project, an onshore 3.5 mta export plant at Kribi. Engie had worked with state-owned oil company Société Nationale des Hydrocarbures for eight years but pulled out this summer, citing “unfavourable” market conditions.
Latin America’s lone LNG-production start-up – a barge-based FLNG project off Colombia – has also been put on hold.
Exmar is seeking new takers for the 500,000 tonne a year barge Caribbean FLNG it built in China to produce gas off Colombia’s Caribbean coast. Pacific Exploration & Production (PEP) had agreed a 15 year contract for the vessel, which at time of going to press had yet to find a taker.
That said, Exmar has not lost faith in emerging-market LNG production. It is concentrating its search off West Africa and in the Middle East, where post-sanctions Iran is eager to get its gas to market.
Several other FLNG projects have been delayed or cancelled this year. Partners Inpex and Shell suffered a major setback when the government of Indonesia overruled their plans to build the 7.5 mta Abadi LNG venture offshore. Moving the project ashore will cost more and push it over its 2020 start target.
After a tough year, FLNG and FSRU prospects may brighten in 2017, however. Douglas Westwood expects spending on offshore LNG – in which it includes both imports and exports – to peak at a total of US$42 billion in 2017.
Douglas Westwood also expects a shift in FLNG capital spending to Africa and Australasia in 2016-2022. It predicts that Africa will attract US$14.3 billion of investment in offshore LNG, or 34 per cent of the global total.
Mr Adeosun says Mozambique and Equatorial Guinea are the exporters to watch and Ghana and Ain Sokhna in Egypt the import hot spots.
New exploration has slowed as oil and gas companies scale back their ambitions. However, Kosmos Energy plans to develop a nearshore LNG production project off Mauritania and Senegal.
Kosmos Energy plans to produce 8 trillion ft³ from the Tortue gas field, and is working with the two governments on a plan to produce and export LNG 8km offshore. The company admits, though, that first gas production “is several years away”.
Improved confidence in offshore production bodes well for players such as Golar LNG, as it presses ahead with its FLNG plans. It needs a final investment decision to place Gandria, its second converted FLNG vessel, with the 2.2 mta Fortuna LNG export project off Equatorial Guinea.
Golar is also converting a third FLNG vessel, Gimi, for a 2018 start date. This vessel, designed to produce up to 2.2 mta, is not yet fixed. Undaunted, Golar believes it can place “five or more” FLNG vessels in the Middle East and West Africa by the end of the decade.
So, despite higher hopes for FLNG next year, new LNG markets will emerge more for imports, for the next couple of years at least. Douglas Westwood expects global investment in liquefaction terminals to reach US$160 billion in 2016-2020. It concludes that the other new LNG-import markets include Colombia, Malta, Vietnam and the Philippines.