The potential for floating liquefaction facilities to reduce the cost of new supply projects – or at least to make costs more controllable and predictable – appears to be rapidly gaining acceptance amongst the sponsors of major new gas developments. This is despite the fact that we have yet to see the first such project start up.
Already in 2014 we have seen final investment decision (FID) and the award of an EPCIC contract for the fourth floating LNG (FLNG) to enter the construction phase – the second Petronas FLNG (PFLNG-2) project. Since then several new announcements have been made for projects that could reach FID before the end of 2014 or early in 2015 – leap-frogging a number of projects already in the pipeline but still some way from FID.
Floating LNG has been decades in development. When Shell announced FID for Prelude in May 2011 it revealed that it had spent hundreds of millions of dollars and 1.6 million man-hours on the engineering design. However, in commercial terms, it is only now – with real projects coming to fruition – that the full potential of FLNG technology is becoming apparent.
Until recently floating liquefaction was regarded primarily as a technology for the monetisation of remote stranded gas fields. The industry view was that FLNG would open up opportunities to bring offshore gas resources to market that were uneconomic because they were too costly to develop using conventional technologies.
But attitudes towards FLNG have changed radically in the past couple of years. Today FLNG is seen by some as of much greater importance to an industry wrestling with ballooning capital costs. The rationale is simple: reduce costs and risk by leveraging the capabilities of the world's great shipyards – such as those in South Korea – to do all the tricky engineering, instead of spending billions on creating new onshore infrastructure in virgin locations.
A perfect example can be found in the developments taking place in Mozambique, one of the world’s poorest countries with little in the way of infrastructure outside the main centres of population. Following huge discoveries of gas offshore, the government would like to see liquefaction facilities built onshore, because of the infrastructure that would bring. But such infrastructure would be expensive, challenging the economics of projects.
Onshore/offshore compromise: Now it appears that a compromise may be in sight – a combination of onshore and FLNG facilities. In February during a strategy presentation by the Italian oil and gas major Eni, the company’s chief operating officer for E&P, Claudio Descalzi, revealed that:
“Considering the significant amount of newly discovered resources, an enhanced development scheme has been defined with a total capacity up to 17 mtpa. For Mamba straddling resources in Area 4, where unitisation has been agreed, Eni is planning one initial onshore LNG train plus two FLNG units, with a total capacity of 10 mtpa and an option for a further onshore LNG train. Eni is also ready to launch the development for the resources of Coral through a floating LNG. We confirm FID for the first phase by year-end, with start up in 2019.”
It was a remarkably confident statement, suggesting that discussions of some kind must already have taken place with the government of Mozambique, given the political sensitivities involved.
The importance of the Mozambique development to Eni was highlighted by Marco Alverà, Senior Executive Vice President Optimization & Trading, who commented: “In the longer term, thanks to Mozambique, Eni will become one of the top [five] LNG players, more than doubling current volumes.”
Leviathan FLNG: In yet another FLNG development, Australia’s Woodside Energy announced during the presentation of its 2013 financial results that it envisages using FLNG at the Leviathan development offshore Israel. CEO Peter Coleman said:
“We expect to be going to FEED on an FLNG project sometime this year. The joint venture is in the final phases of preparing for an invitation to tender on that. And so, if you roughly say there's 12 to 15 months of a FEED activity, you can see that you'll be into late next year potentially at an FID stage for the first of the exports projects, or at least the FLNG project.”
The announcement followed the news a couple of weeks earlier that Woodside had signed a Memorandum of Understanding (MoU) to acquire a 25% participating interest in the project from operator Noble Energy.
The Leviathan project will consist of a gas floating production, storage and offloading (FPSO) vessel, which will export gas by pipeline to markets in Israel and elsewhere in the region, and an FLNG vessel with capacity of 3.3-4.8 mtpa. Target FID date for the FPSO is 2014.
First FLNG project in the US? The proposed Lavaca Bay project in the United States, sponsored by Excelerate Energy, took a significant step forward in February when it made its formal application for environmental approval to the Federal Energy Regulatory Commission (FERC). US LNG export projects are obliged to go through a period of pre-filing lasting a minimum of six months before they can make a formal application. Excelerate had hoped to do so last May, so it has faced a delay of some nine months.
Despite that, the project hopes to reach FID early in 2015. “The filing represents a major milestone and further strengthens project momentum as we head towards a final approval,” said CEO Rob Bryngelson. “We continue to make strong progress on all fronts and hope to make a final investment decision within the next 12 months.” Pending FERC approval, the facility is expected to be operational in the fourth quarter of 2018.
Equatorial Guinea: In yet another development, Ophir Energy and Equatorial Guinea’s Ministry of Mines, Industry and Energy announced on 20th February that: “Two Letters of Intent (LoIs) have been signed regarding the development and implementation of a gas commercialisation project and FLNG project in respect of Block R offshore Equatorial Guinea.”
The LoIs, signed with BumiArmada and Excelerate, cover the selection of the provider of the FLNG vessel and related design, engineering, construction, commissioning, operation, local content and maintenance. The next step will be the signing of an MoU between the state of Equatorial Guinea, Ophir and the selected FLNG provider – “in 30 days”.
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