This is a periodic newsletter from OpenWater Energy Ltd where we discuss and and analyse key developments related to the Offshore Energy Transition. We trust that you find this interesting, and any feedback is welcome – please send it to info@openwaterenergy.com
This review discusses the most important trends we followed in 2018 for the LNG industry.
General LNG Market
Both LNG supply and LNG demand increased rapidly in 2018, a trend which looks set to continue in the near term. The key question is whether this can be achieved in balance, or whether the relative timings will lead to periods of global LNG glut or shortage, with consequent impact on spot prices.
Onshore, 6 new LNG plants started production in 2018. The US led the way with the first 3 plants exporting a total of around 19 mtpa of shale gas (the first trains at Sabine Pass, Cove Point and Corpus Christi), followed by 3 trains at Yamal in Russia (16 mtpa) and 2 trains at Ichthys project in Australia (9 mtpa), as well as a small plant in China. Offshore, only one FLNG started production in 2018, being the Golar Hilli in Cameroon (2 mtpa), which is chartered to Perenco.
Some of the larger LNG complexes have seen production levels falling due to decline in availability of feedstock gas, and are seeking backfill gas to restore production levels. These include the Western Shelf in Australia, which is looking to Browse field for future supplies, Darwin LNG in Australia where Barossa and Evans Shoal are competing to provide backfill gas, and the Bintulu complex in Malaysia where Petronas is considering several offshore fields as sources of future backfill gas.
Looking forward, a further 69 mtpa is under construction, with over 90% of this located in USA and Canada, and around 32 mtpa of this capacity is due to come onstream in 2019. But a staggering 256 mtpa of additional onshore LNG capacity is under the FEED study or Bidding stage worldwide, with the top 4 locations being USA (57%), Qatar (12%), Mozambique (11%) and Russia (8%). To put this in context, these projects would increase the global LNG production capacity by 50% over the next 5 to 10 years. Most industry forecasts show LNG demand growing by some 150 to 200 mtpa by 2030, so whilst many of these projects will likely proceed, and indeed will be required, some can be expected to slip.
Floating LNG is forecast to grow at a much more modest rate, potentially reaching a total of 20 mtpa capacity for all planned and actual projects by 2025. This would represent only 2.5% of global capacity, so playing a minor role in the LNG surge.
Can FLNG Become Economic?
FLNG faces strong headwinds in two main areas. Firstly, abundant quantities of shale gas in both USA and Canada currently provide a lower cost supply of feedstock gas than most offshore projects, especially those in deepwater.
Secondly, let’s consider the maturity of the liquefaction technology. The onshore liquefaction workhorse is APCI’s C3MR process, of which 72 trains are now in operation or are under construction, plus a further 20 trains of the C3MR Split derivative. Similarly, the ConocoPhillips Optimized Cascade process has 25 trains working or under construction. Together, these 3 processes account for around 80% of global LNG production today. In contrast, FLNG technology remains very immature, and is far from being standardised. The six FLNGs currently in operation or under construction are built by six different main contractor groups using three different liquefaction technologies. As a result each project is a custom design and build, with a significantly higher CAPEX per tonne of capacity than the equivalent onshore plant. Until more consistency and standardisation can be achieved, FLNG will struggle to compete with onshore projects, except perhaps for niche applications.
The FSRU Market
Five FSRU’s started operation in 2018, and a further 2 in the first weeks of January, bringing the global fleet of complete vessels to 31. A further 11 vessels are under construction, due for delivery in the coming 2 years.
FSRU’s now offer a convenient way to stimulate increased LNG demand at a time of potential oversupply, by allowing import terminals to be fast tracked. In 2018, Bangladesh deployed its first FSRU vessel and in 2019 three more are due to join the FSRU club – India, Jamaica and Russia.
However, it is concerning to note that, out of this growing global FSRU fleet, eight vessels are not currently operating as FSRUs and are either trading as LNG tankers or are in layup. Although there are at least 20 new FSRU projects identified and under active discussion or bidding, the coming year could be turbulent for vessel owners, and we could see a slow-down in new orderings unless owners see a higher utilisation factor for their vessels.
Of the major FSRU players, Excelerate and Golar both have 6 vessels in operation and 2 in standby/trading, whereas Hoegh has 5 in operation and 3 in standby/trading. There are 12 players with a single FSRU vessel, partly due to a growing opportunistic approach from LNG shipping companies. This is enabled by the fact that FSRUs are now effectively commoditized, with owners able to call-off standard FSRU vessels of proven design from any of the 3 major Korean yards with minimal engineering or project management effort required.
The pool of small players also creates considerable scope for consolidation in the market, and 2019 cold prove interesting in that respect.