FLNG: Costs and cost drivers

Andrew Duncan's picture
Andrew Duncan, Principal Advisor, Gaffney, Cline & Associates
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With the LNG sector experiencing unprecedented growth, but with gas prices globally under pressure from both low oil prices and a very competitive supply situation, project developers are looking for new ways to get their gas to market. Although the industry has stuck closely to the tried and tested methods of producing LNG by land based liquefaction and storage with accompanying marine facilities, more projects are actively considering floating concepts. The key question for the industry is how the economics of these novel projects will compare to more traditional approaches. To make informed decisions Natural Gas resource holders, investors and regulators need an understanding of the nature, costs and cost drivers of Floating Liquefied Natural Gas (FLNG) technology.

There has been a tendency (outside of the industry) to attach the “FLNG” label to any technology that is associated with gas, and floats. This includes floating storage and regasification units (FSRU), LNG transport carriers, or floating LPG processing units (LPG FPSO). Here we focus only on those projects where natural gas is liquefied by cooling and is located on a floating vessel- Floating LNG, or LNG FPSO as it is sometimes termed.

There is a wide variety of FLNG project types, ranging from liquefaction-only facilities in benign water environments, to fully-fledged gas pre-processing, liquefaction, storage and offloading facilities in hostile environments. The quoted unit costs of these projects can range from below US$500/TPA capacity to above US$4000/TPA- although the average is around US$1400/TPA.

GCA’s review finds the key drivers of FLNG project cost, and cost/capacity include:

  • The additional project scope in the estimate- field development, subsea systems, owner’s costs
  • The additional upsteam gas and liquids processing required on the FLNG, supply gas quality
  • On-board storage requirements for LNG, condensate, and LPG’s
  • The liquefaction process and its associated efficiency, reliability, and availability
  • Metocean conditions and mooring design
  • The capacity value used to quote cost/capacity (LNG, liquids, peak, average…)
  • Hull supply- newbuild or vessel conversion

We also see some of the key advantages of FLNG being leveraged: Project fabrication can be carried out globally- vessels are under construction in South Korea, Singapore, and China. FLNG is independent of onshore land use issues. The liquefaction process design can take advantage of more stable marine temperatures and supplies of cooling water.

Project assessment includes many other aspects beyond cost and capacity. FLNG developments can differ in certain aspects to conventional onshore LNG in terms environmental footprint, cost predictability, financability, commercial structures and local content.

With an understanding of the technology choices and cost drivers behind FLNG projects, we can begin to make sense of the limited financial information offered in the public domain. Although the uncertainty range around FLNG costs will remain wide until the experience base develops, we are now at the stage where a more detailed appreciation of the requirements of each particular project can be used to prepare screening level estimates in support of concept selection.

Join the Conversation: Do you agree with Andrew? Are there any other key drivers of FLNG project cost?

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