LNG supply is growing rapidly on the back of expanding production capacity and will increase by another 100 million tonnes or 35% by 2020. This expansion is changing market dynamics, and LNG producers are becoming more active in opening up new markets for LNG. FSRUs hold the key to unlocking the majority of such markets, because of the effectiveness of floating regasification solutions in terms of cost and time as compared to land based LNG import terminals.
LNG market as a buyer’s market
The current LNG market is a buyers’ market; it is long supplies and the LNG prices are competitive. The standard trading model is changing from primarily long term LNG SPAs, to more spot and short term volumes. The trading pattern is expected to change with new supply from the US to feed Europe, South America, Africa and Asia while new volumes from Australia will add to existing Asian supplies.
This transition from a seller’s to a buyer’s market is a window of opportunity for new LNG importers without existing LNG import facilities. FSRUs provide access to the world market for LNG and are quicker, more flexible and cost efficient for importers that do not have the need or the time to build land-based solutions.
As shown in Egypt, even medium to large size regasification terminals with baseload gas send-out in excess of 1.2 Bcf per day are possible to put into operation in less than one year through the use of FSRUs (two units). A similar land based LNG import terminal would have taken 5-6 years to build, and would have cost significantly more.
FSRUs build fast growing markets
Some new importers pursue LNG as an additional source of energy, either for security of supply reasons due to seasonal demand or as base-load demand for power production in their markets. Additionally, some importers use LNG as a supplement to cover declining domestic supplies and / or increasing demand for electricity.
Egypt, Turkey and Pakistan are examples of countries utilising FSRUs in order to fill gas deficits with competitively priced LNG, while markets such as Poland and Hong Kong are currently contemplating the installation of FSRUs for various strategic reasons.
The FSRU technology is mature and in constant improvement. The previous scepticism towards ship to ship transfer (STS) operations with both hoses and loading arms is today an accepted and standard LNG operation. The storage capacity has been used as an argument against deploying FSRUs, as it was believed to interfere with the import capacity of the terminal. However, large size FSRUs, with a storage capacity of 170,000 cbm or more, has shown that this is not an issue.
Building additional LNG markets – FSRUs as supply hubs for small scale LNG
There is increased demand for LNG distributed in smaller quantities to new regional and local markets with no or limited access to pipeline infrastructure. In markets, such as South America and South East Asia, where the total gas send-out and storage capacity of FSRUs sometimes exceed the initial local market demand, there are excellent opportunities for marketing excess FSRU storage and re-load capacity to increase the economic attractiveness of an FSRU project.
Current FSRU market activity reflects the increase in LNG supply as both throughput volumes and the number of contract awards for FSRUs increase. Six new FSRU contracts were awarded in 2016, and market activity has remained high into 2017.
Rising levels of activity in the LNG market generate interest among potential new FSRU providers. Höegh LNG plans to remain the leading provider of FSRUs by continuing to expand its newbuilding portfolio on the basis of further contract awards, and to maintain its strategy of always having one uncommitted FSRU newbuilding in its portfolio to meet the timeline for future FSRU projects.
Share your insights and join the conversation: How will FSRU’s change the global gas market in the next 5-10 years? Leave your comment below.
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