FLNG: an industry game changer?

The potential of floating liquefied natural gas (FLNG) developments as an energy sector game changer is discussed here by MSC Kenny's Paul Jukes and Wood Group Mustang's Bryan Trocquet.

According to the US Energy Information Administration (EIA), between now and 2030 global energy consumption is projected to increase by 44%, with oil and gas – along with coal – continuing to meet the largest part of this requirement.

As demand for energy grows rapidly worldwide, natural gas – the cleanest burning fossil fuel – will play a vital role in balancing economic growth and environmental responsibilities.

As chairman of the IMarEST Offshore Oil & Gas Special Interest Group (SIG), Dr Paul Jukes will chair the day-long FLNG stream it is presenting at the Gastech Centres of Technical Excellence (CoTEs) seminars in London on 9 October. IMarEST will also be exhibiting at Gastech (stand D276) from 8-11 October.

The potential of floating liquefied natural gas (FLNG) developments as an energy sector game changer is discussed here by MSC Kenny's Paul Jukes and Wood Group Mustang's Bryan Trocquet.

According to the EIA, there is more than 250 years of gas available in the world at current consumption rates.

In recent years the number of offshore gas discoveries has increased globally, with liquefied natural gas (LNG) and floating LNG (FLNG) becoming of even greater significance in terms of meeting the world’s future energy requirements.

But with land-based LNG extraction facilities becoming more costly, FLNG is poised to offer an alternative means by which to unlock stranded resources as the demand for fuel soars. A floating LNG facility allows gas to be liquefied offshore, a process that, until now has involved piping the gas to a land-based plant. A segment of the natural gas industry believes a floating LNG facility is economically advantaged over traditional land-based solutions.

While the FLNG industry is still in its infancy, projects are now advancing to the final investment decision stage, bringing to market previously undeveloped reserves of natural gas. And while it is undoubtedly an exciting sector, there are a number of factors to be taken into consideration.

Critical drivers

LNG’s popularity is primarily due to the fact that it can be transported long distances, in large quantities, at a cheaper cost than by pipeline and at a cheaper cost than alternative fuels.

Recent years, however, have seen a real change to the economic profile of traditional LNG projects, with many companies finding them less attractive as a result of decreasing return on investment prospects.

The steady run up in total installed costs of conventional onshore liquefaction projects (some exceeding more than $3000/t) is driving the market to consider alternative design solutions. These include both FLNG and modular onshore concepts that appear to have both price, schedule and quality advantages over traditional onsite, stick-built methods.

Most importantly for floating LNG facilities, they are likely to be more financially competitive. With no pipeline from the field to the shore, some of the costs associated with traditional LNG production are immediately removed. Companies can therefore recognise significant savings straight away. In addition, FLNG solutions provide an economically attractive means to monetize smaller natural gas reservoirs (below approximately 1.0tcf proven reserves), with the flexibility to relocate the floating facility to another production site upon depletion of reserves.

FLNG can potentially provide an ‘early start-up’ advantage, since the majority of the facility can be built simultaneously in the controlled work environments of a shipyard and fabrication yard. Additionally, FLNG will encourage greater competition during the fabrication and construction stage, thereby improving delivered price, quality and schedule.

FLNG also has another distinct advantage; time. The time taken to develop traditional LNG projects has proven lengthy. The Gorgon project, for example, one of the world’s largest natural gas projects and the largest single resource natural gas project in Australia’s history, has taken almost two decades to develop (OE April 2006).

With floating production, oil & gas companies do not have to take into consideration lengthy site selection processes or long environmental reviews, as in the case of Gorgon. Furthermore, the typical environmental footprint associated with land-based LNG terminals is reduced in the case of FLNG projects; an added benefit.

Commercial parameters

The most important factor in terms of commercialisation of floating production is the need for a proven solution based on prior experience and application.

Since FLNG does not currently exist in the marketplace, owners and operators will want to base their projects off of previously used technologies, designs and equipment. Industry contractors with a strong resumé in floating facilities design and operation of natural gas production, separation and conditioning facilities; both conventional and cryogenic, will hold most appeal.

In order to make an FLNG project economically viable, it must clear the minimum required economic hurdle that will allow the facility owner to achieve an acceptable risk weighted return on investment. Furthermore, if an FLNG project meets the above requirements, it will still need a firm supply contract, offtake contract, and/or lease services contract in order to obtain project financing.

Knutsen FLNG facility designed for 2.0mtpa.

Smaller stranded offshore gas fields have previously been considered uneconomic to develop, due primarily to geographic limitations, such as distance from shore or deepwater. FLNG vessels are ideally suited to help monetize such gas sources, which are often located too far from a suitable onshore production location to be economical. An FLNG facility designed for 1.0-2.0 million tonnes per annum (mtpa) of LNG production can be dedicated to a 1-2tcf field for around 20 years. The same size FLNG could be used for multiple, smaller fields, operating for five years at one field before moving to the next, for example. Future site mobility is yet another advantage of the FLNG facility design.

The challenge with this multi-use scenario is that gas compositions are rarely identical from one well to the next. This means that the pre-treatment equipment on a multi-use FLNG must be designed to handle a potentially wide concentration of impurities including CO2 and H2S, as well as different percentages of liquefied petroleum gas (LPG) and condensate products.

Another issue posed by small FLNG is shipping and market options. By definition, the smallest FLNG vessels will not store as much LNG as today’s typical LNG carrier, which holds from 125,000m3 to in excess of 200,000m3 of LNG. If the less common, smaller carriers or shallow-draft barges are used to transport the LNG to market, existing LNG import terminals may not be viable customers, as they may not wish to utilize their valuable berth space for relatively small LNG loads.

It is more likely that the smaller FLNGs will sell to a new market: small import terminals, often located in areas of shallow water where conventional LNG carriers are not able to operate. A scenario in which a dedicated small FLNG and one or two LNG shuttle barges supply one or more small import terminals located within a radius of a few hundred miles – a concept called ‘small scale, short haul’ – is a possible option.

Wood Group Mustang 2.0mtpa FLNG concept.

Dr. Paul Jukes, Houston-based president of MCS Kenny Inc, has a Bachelor degree in mechanical engineering and structural engineering from the University of Sussex. A chartered engineer, he is a fellow of the Institute of Maine Engineering, Science & Technology (IMarEST) and chairman of its US Gulf Coast branch.

Bryan Trocquet director of business development upstream at Wood Group Mustang, has a BS in mechanical engineering from the University of New Orleans and is a member of the Society of Petroleum Engineers and the American Society of Mechanical Engineers. He has specialized in LNG-based regasification and liquefaction, as well as gas processing projects, and is also active in offshore FLNG project development efforts.

Regions of promise

The most promising regions for FLNG seem to be where there are remote gas reserves that cannot be easily tied into existing pipeline infrastructure or cannot access existing conventional liquefaction facilities. Currently, the primary regions of interest include Southeast Asia, northwest Australia, offshore Brazil and the African continent. This is driven by the remoteness of the sites and the lack of viable alternatives to monetize the gas reserves.

The challenges will be to provide a total value chain solution that meets the economic hurdles of all parties involved.

From a project point of view, the forerunner today is Shell’s Prelude FLNG facility (OE July 2011), to be located around 200km off the Australian coast. At 488m long, 74m wide and displacing around 600,000t of water, it will be the largest floating offshore facility in the world, with storage tanks large enough to hold the same amount of liquid as 175 Olympic-sized swimming pools.

Furthermore, LNG production by this large and complex facility will have the potential to meet 117% of Hong Kong’s annual natural gas demand.

Other FLNG projects in the works include ones for Petrobras in the ultra-deepwater Santos Basin, Petronas offshore Malaysia and GDF Suez’s Bonaparte project offshore Australia. Similar projects are also under consideration in Papua New Guinea and Nigeria.

As the FLNG industry is still in its infancy, it is difficult to accurately forecast trends. However, we anticipate that future FLNGs will fit into one of two broad categories:

Large, complex vessels using highly efficient LNG processes, producing both LNG and more valuable LPG and condensate products. Shell’s Prelude is a prime example of this; and
smaller FLNGs, using simpler LNG processes with potentially minimal LPG and condensate production.

Floating LNG’s unchartered territory makes it particularly well-suited to larger companies with plentiful resources. This is demonstrated by Shell’s Prelude project – with the potential commercial risks, a company with extensive financial and technical resources is needed to lead a project of this nature.

Investment into floating LNG production will eventually occur, but it must prove its economic viability on a stand-alone basis.

It is more likely that FLNG will not replace onshore base facilities; rather, it will expand LNG production into areas where it had not previously been viable. OE