Editorial

Change of course as FLNG players take second look at financials

Questions remain over cost and project economics

Liam Kelleher

Gas and LNG Analyst

Liam combines his expertise in engineering, economics and finance in his role as gas and LNG analyst.

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What challenges face the FLNG industry in 2019, and what is its role in the LNG industry as a whole? Get the latest analysis from our experts on FLNG costs, project economics and long-term outlook.

This article features abbreviated analysis and data from the report, "Global FLNG Overview 2019", available in the store today. 

What you need to know about FLNG

Floating LNG (FLNG) refers to the placement of liquefaction infrastructure on a ship  "floating"  rather than onshore. The aim of the technology is to fastrack and monetise the development of gas resources in remote or sensitive locations. FLNG projects fall into two distinct categories: near-shore developments and open-sea developments. 

Despite its small share of the total LNG market, FLNG has generated outsized interest in recent years. In a world requiring tight capital discipline, FLNG offers lower capital investment and manageable costs. Faster construction times offer early cash flows to support further development as highlighted by the FIDs taken on Coral and Tortue.  

But in the coming years a slower steadier pace of growth is likely as FLNG competes for capital and buyers in a busy LNG market.    

For an in-depth analysis of the FLNG industry and our experts' predictions for its future, purchase the full FLNG commodity report. 

  • $1400 per tonne

    The average cost of FLNG and LNG projects since 2009

  • Between 2% and 4%

    FLNG's share of total LNG supply to 2035

  • $0.40/mmbtu to $2.00/mmbtu

    The typical range for FLNG operating costs

  • $3.5/mmbtu

    Average Henry Hub prices set to remain at this level

FLNG – a bright spot in the LNG supply market

Following the oil price crash in 2014, coupled with a view of an oversupplied LNG market, sanctioned volumes of new supply LNG dropped considerably between 2015 and 2017. However, throughout these stagnant years, FLNG was a bright spot in the market and took a considerable leap in industry confidence with three projects now operational since the first FLNG cargo shipped since 2017. Furthermore three of the seven projects to take FID between 2015 and 2018 were FLNG projects. However memories of the cost overruns suffered by Prelude and PFLNG will loom large in the minds of Coral FLNG and the latest project to take FID – Tortue FLNG – both currently under construction.

Coral FLNG – an ENI project offshore Mozambique – currently promises a cost per tonne of less than half of PFLNG 1 and Prelude. Furthermore BP and Kosmos Energy have selected Golar to provide an FLNG vessel for Phase 1 of Greater Tortue development with low cost liquefaction. Similar near-shore and low cost FLNG projects also look to push the boundaries of capacity limits and compete against high capacity onshore projects. Delfin FLNG (12.0 mmtpa) is making progress with Golar on developing a 4 x 3 mmtpa vessel concept.

Choppy waters ahead?

The FLNG sector still faces numerous challenges. Governments are concerned by the transfer of jobs to foreign shipyards during construction and to offshore workers during operation. This has seen governments push for onshore developments, such as Abadi (Indonesia), Greater Sunrise (Timor Leste/Australia) and Tanzania.

Furthermore, the significant reduction in exploration expenditure since the oil price crash in 2014 has yielded few suitable new gas discoveries. Many of the projects touted as prospective FLNG developments have been in the limelight for a number of years. The FID trend in the LNG industry more recently has favoured high capacity US onshore projects with lower capital and operating costs. 

FLNG projects face difficulties obtaining both the necessary partners, buyers and financing against such high capacity projects. A strong forerunner for FID  Fortuna FLNG  appears to be out of luck, time and investors in the project. Prospective North American FLNG projects  such as Delfin FLNG  are struggling to attain the same interest as onshore projects despite the use of low cost liquefaction vessels.

The lack of economy of scale is likely to limit FLNG projects to small scale and remote developments. This often requires the FLNG facility to be integrated with the upstream section of the project, resulting in projects of increasing complexity and cost. 

We expect this trend to continue high capacity projects in the US, Russia, Qatar and Mozambique looking to take FID. The lack of economy of scale is likely to limit FLNG projects to small scale and remote developments as it competes for buyers, financing and partners in a busy LNG marketplace. However, FLNG has established itself as a credible development option and  with further experience and cost reduction  further projects may quickly appear in an otherwise quiet FLNG FID outlook. In addition, the learnings of floating are being incorporated into a new development concept – platform based liquefaction as being looked by a number of projects. 

Commodity

The article you've just enjoyed summarises some of the key findings of our FLNG commodity report, authored by Liam and his global team of LNG analysts.

Global FLNG Overview 2019

Visit the store to purchase the full 45-page report

Picture credit: Royal Dutch Shell Plc