Soaring Chinese LNG demand and lower FSRU start-up costs mean it will be a suppliers’ market for the next three years, according to Wood Mackenzie’s director of gas and LNG consulting Mangesh Patankar.
Mr Patankar was addressing delegates at the LNG Ship/Shore Conference – Asia. Speaking in session one of the two-day conference, Mr Patankar told an audience of 75 industry professionals, including 40 owners, that Chinese demand and the increasing number of FSRU’s coming on stream will absorb 400M tonnes of LNG by the end of the decade.
Chinese LNG imports have grown at an annual rate of 12M tonnes since 2015 and show no immediate signs of slowing. To put this in perspective, Japan ‘only’ imported an additional 9M tonnes of LNG in 2012 when it closed its nuclear plants following the Fukushima Daiichi nuclear disaster.
Mr Patankar spoke approvingly on FSRUs, which are creating new importing countries. “Egypt is a case in point; they had a terminal up and running in seven months,” he said. “A lot of countries needed LNG yesterday,” he added. “Pakistan and Bangladesh are good examples of the transformative impact an FSRU can have because both countries were facing gas deficits.”
The lower capital expenditure required to commission an FSRU compared to investing in a land-based plant means securing financing is easier. Pakistan’s US$175M investment in a second FSRU compares favourably with the US$750M - US$800M costs of a comparable land-based terminal.
Mr Patankar acknowledged that FSRUs have a higher operating cost than their land-based counterparts, but noted that this can be recovered through monthly or yearly payments.
“Scalability of storage is likely to be the only issue versus land-based storage, where scalability is relatively simple,” he said, adding the caveat, “if you have land.”
Unlike FSRUs, FLNG is a maturing but niche part of the business, according to Mr Patankar.
“2017 was a year of firsts for FLNG,” he said. “The first cargo was shipped; the first converted FLNG facility set sail; the first large-scale FLNG facility was completed and the first deepwater FLNG project was sanctioned. But the greatest prospects are to be found on small-scale projects.”
Speaking more widely, Mr Patankar said three factors had combined to turn the LNG market on its head over the last decade: a change in the industry interests involved in liquefaction; more flexible contractual terms; and unified pricing arrangements.
Historically, liquefaction was controlled by oil majors. But the advent of new projects in the US and Australia has spawned new interests that collectively supplied over 30M tonnes of LNG last year. This has been easily absorbed by countries switching to cleaner fuels and avoiding high coal prices.
“Where LNG has been more of a point-to-point play, developed to serve a specific market or a terminal, European regulators have stated that destination restrictions should not be part of contracts, which has supported the development of a spot market.
“And Asian buyers have started to question the huge premiums they had been paying on imports. We are now seeing more linkage between pricing and the markets,” he said.