Will Floating LNG Revolutionise The Natural Gas Industry?

Floating liquid natural gas, the notion of performing gas liquefaction offshore on a floating vessel near the point of extraction, has seen a growth in interest since around 2006. Several companies prepared a Floating LNG concept and performed research to develop some non-existing, though indispensable, technological components. During the following years, the industry was marked by some long debates about whether the technology had progressed sufficiently for the deployment of the first unit. After years of discussion and investments, the first Floating LNG project, Shell’s Prelude, has finally been announced in 2011. Today the industry counts over 20 other FLNG projects and its business is sized to exceed 60 Billion USD for the next decade.

While liquefaction is traditionally performed onshore, Floating LNG literally displaces the entire process on top of a vessel, located nearby an offshore gas field. Thanks to this shift, the need for an extensive pipeline structure to shore as well as a production platform is eliminated, thereby potentially reducing the cost of taking the gas to the market. Moving the liquefaction offshore also facilitates the permitting process, reduces the risks for neighboring communities as well as the impact on the environment. Additionally, there is a possibility to relocate the vessel at the end of a field life

Although the Floating LNG concept is attractive, its true potential ultimately depends on several other factors. Without sufficient gas supplies, there is no incentive to perform the R&D required to develop this technology. This explains why Floating LNG initially emerged as a solution for the substantial amount of stranded gas fields that are difficult to monetize due to their long distance to shore. Today it is also seen as a possible solution for associated gas, since continuous flaring is prohibited. As a matter of fact, FEED studies have been performed to evaluate its feasibility in regions with abundant oil fields, like the Brazilian pre-salt.

By unlocking these potential gas fields, the energy industry can respond to the projected rise in demand, fueled by the increasing global population and growth of emerging economies. In addition, by offering a cleaner alternative, Floating LNG can contribute to the reduction of CO2 emissions. Thanks to the technological achievements of the LNG industry, gas is also expected to be increasingly traded as a commodity, like oil. The expectations are high, as some even speak of the “golden age for gas,” which is encouraging news for Floating LNG.  

However, the surge of unconventional gas developments has had an important impact on the global gas picture. While the US was thought to become a major gas importer, it is now considered as a potential future gas exporter. This induces some uncertainty to the projected demand and therefore to the future price developments. The latter are already complex due to their strong regional components: Asian gas prices are higher than ever since the Fukushima incident. As prices form the basis for the calculation of the expected return of such a project, their projected evolution is key to Final Investment Decisions.

As with any emerging technology, the deployment of the first Floating LNG unit has a technological risk component. This can be reduced by incorporating as much proven technology as possible, thanks to the existing experience in onshore liquefaction plants and offshore platforms. It should therefore not be a surprise that most Floating LNG concepts are proposed by experienced offshore engineering firms in collaboration with LNG technology providers. For some environmental conditions, Floating LNG has required the development of some very specific technological components that are key to its performance.

While side-by-side offloading can use offloading arms that have been widely used by the industry, more severe environmental conditions require tandem offloading that demand specific tandem offloading systems and dedicated LNG tankers. The margin for technological uncertainty in the offloading system is very low, as it can disrupt the product delivery and therewith jeopardize the entire viability of the project. A second key uncertainty arises from the onboard LNG storage that could suffer from sloshing. This phenomenon occurs when the liquid inside the tanks resonates with the excitation caused by the waves and can lead to very high peak loads on the tanks’ walls. Although its effect has been investigated, the phenomena is still not entirely controlled and it is a challenge to adequately predict the forces that will arise on the walls of an LNG tank. LNG carriers have been sailing the seas for years with certain filling prescriptions (less than 10% or over 90%) as to reduce the risk of sloshing. However, when a Floating LNG is moored at a fixed location, the filling of its tanks will vary continuously in accordance with the LNG production and offloading schemes. Hence a Floating LNG has an increased exposure to sloshing risks. Further technological uncertainty arises from the liquefaction equipment itself that was designed for onshore applications, for example due to maldistribution or fatigue resistance A 50 meter distillation tower will suddenly have to perform under the vessels continuous motions, which means that the top will continuously shift about 5 meters for 6 degree roll. Although the onshore liquefaction equipment designs have been adapted to function on sea, there is some uncertainty around their real performance once they are deployed. Further uncertainties can arise around LNG spill containment, which has not been managed on a platform before.

Although overall Floating LNG seems an attractive concept, the ultimate finance decision will depend on the specifics of each project.  Investors are likely to see the technological risk diminish as they consider more benign environments. The vessel can also help mitigate political risk, since the entire liquefaction plant can be displaced, contrary to an onshore plant. There is the option to redeploy de unit after field depletion and financing parties can even seize the asset if they see the need. On the other hand, the fact that the whole plant is located on a single vessel means that the failure of a critical component can compromise the entire investment.

 The novelty of Floating LNG technology has not impeded the industry from investing about 15 Billion USD. The whole world is watching as Petronas´ Kanowit and Shell’s Prelude tackle the challenges they encounter on their paths towards production, planned to start in 2015 and 2016 respectively. Surely, their experience will provide the industry with some valuable data to optimize the Floating LNG solution and bring it to the next level.