As the LNG production from the US, Australia and Russia creates more supply than traditional buyers can absorb, new markets are emerging worldwide to take up some of the surplus supply. Most of these emerging markets are backing on Hybrid ships, called FSRU, which offer a cheaper, quicker solution in meeting the burgeoning gas demand by importing LNG. This article highlights how the FSRUs are gaining wider acceptance and how it will soothe the LNG exporters globally.
Appetite for floating LNG terminals is booming
As the growth in traditional markets is somewhat stagnated, LNG producers and traders are actively chasing emerging markets — those with intermittent or changing weather pattern demand. A wave of new buyers has also come up to take the portion of ‘homeless LNG’ at a competitive rate, all thanks to lower LNG prices and increased spot trading in the recent years. The growth in LNG demand is shifting to new emerging markets. Of this growth, most of the recent entrants have opted for or will utilize Floating Storage and Regasification Unit (FSRU) as a solution FSRUs have emerged as the most popular option as countries can start importing on short notice and rapidly expand capacity by leasing another floating unit.
Source: GIIGNL, EIA, BP Statistical Review 2016 and Protiviti Calculation
Note: Percentage on the column represent Floating regasi cation share of total
Building a permanent land-based LNG import terminal can be expensive and time-consuming and can get delayed due to regulatory obstacles. The FSRU can cost around $300 million to build, or $80 million to convert to an LNG tanker and run as much as six times faster within a 12 month period. So, for many prospective LNG buyers, FSRUs present a cheap, fast- tracked and competitive solution. Growing deployment of FSRUs is benefitting emerging importers without the need for expensive onshore import terminals.
Countries such as Ghana, Senegal, Ivory Coast and Namibia are opting for FSRUs as their limited fuel demand does not justify land-based terminals, while others like Egypt see FSRUs as a short- to-medium-term solution until domestic gas production recovers. On the other hand, the UAE has preferred FSRUs over land-based terminals as they are more suited to the summer peak demand of individual Emirates. In case of Turkey and Lithuania, LNG imports from FSRU is part of a strategy to reduce its reliance on Russian gas. For Asian countries such as China and India, the move towards FSRUs is largely driven by the need to diversify the energy mix. The geographical profile of certain South East Asian countries such as Indonesia and the Philippines highlights the future growth opportunities for small scale FSRUs. FSRUs offer a relatively – quick and inexpensive means of procuring gas when compared with other gas procurement options such as onshore regasification or pipeline supply.
There were 23 FSRUs in operation worldwide at the start of the 2017. Three more FSRU projects are likely to be brought online by the end of 2017, making the total of 26 operational FSRUs. Höegh will deliver two vessels, one to the port of Tema in Ghana and the second to Concepción Bay in Chile. BW will deliver an FSRU to Port Kasim in Pakistan this year. The majority of new markets in recent years have been FSRU markets. The number of FSRU vessels is expected to reach 40 by the end of this decade, potentially allowing new markets to open up and making LNG a truly global commodity. With the US, Australia and Russia all adding significant liquefaction capacity, LNG glut is further expected to accelerate the deployment of FSRU around the globe. Suppliers are also becoming more willing to offer lower levels of oil indexation in contracts which is attracting emerging buyers. FSRU imports have almost doubled in the past two years and now account for as much as14% of the 265mt of LNG supplied annually.
Regional & Country trends Asia – Is the giant sleeping?
Asia is the largest regional market for LNG, accounting for more than half of global LNG imports in 2016. Japan, South Korea and Taiwan are well established LNG markets, while China and India are emerging as major LNG importers. In East Asia, currently, China has 11 LNG regasification terminals with a combined capacity of 41 mtpa. Furthermore, it is building another six terminals and expanding three existing ones. China National Offshore Oil Corporation has received the first cargo of LNG by using an FSRU in 2013. China is planning to order four more such floating units by the end of 2019, however, it is unclear how many will come online. Hong Kong is also exploring the possibility of mooring an FSRU.
Source: GIIGNL, Wood Mackenzie, EIA, Interfax Energy, LNG World Shipping and news articles
South and Southeast Asian countries are showing a strong appetite for LNG imports, counterbalancing the region’s weaker demand in Japan and South Korea. Emerging markets such as Pakistan and Indonesia demonstrate great potential for LNG-import growth. Now, several other countries – Bangladesh, Myanmar and the Philippines are also planning to import their first cargoes with the help of floating terminal.
India has four LNG terminals – at Hazira, Dahej, Kochi and Dabhol, with 25 mtpa of combined regasification capacity. India is looking to expand its LNG import capacity and has ambitious plans for both land- based and floating terminals. Hiranandani Energy has started constructing on a jetty for a 4 mtpa FSRU at the port of Jaigarh in the Indian state of Maharashtra. The vessel’s capacity is expected to be expanded to 8 mtpa in the future. Shell is involved in another FSRU project in Kakinada in the Indian state of Andhra Pradesh. Pakistan brought its first FSRU online at Port Qasim in March 2015, having regasification capacity of 4.5 mtpa. The second vessel, owned by the BW Group, is scheduled to arrive at Karachi by June this year. The country plans to moor another two FSRUs at the port before the end of 2018 to meet its soaring gas demand. Bangladesh is also committed to secure sufficient quantities of LNG to prevent gas shortages by 2018. The country is expected to start importing LNG by 2018 using an FSRU supplied by Excelerate Energy. South Asian countries are prioritizing its LNG imports as the international gas pipeline projects are not expected to materialize soon.
In South East Asia, Indonesia opened its first regasification terminal in 2012 in West Java. In 2016, Indonesia commissioned a floating regasification unit (FRU) and a floating storage unit (FSU) to ship LNG from Bontang to Bali using a small- scale vessel. Malaysia started LNG imports in 2013, using two LNG carriers as FSUs, moored next to jetty-based regasification units at the Melaka offshore terminal. Momentum for a new wave of import is expected to start from the Philippines and Myanmar. Philippines National Oil Company is in advance discussion with foreign partners to construct LNG facilities, including a 200 MW power plant and FSRU by 2020. Myanmar is also set to launch a tender for a 3-4 mtpa floating LNG terminal by June 2017.
Global Fleet of FSRUs in Operation
The Middle East & Africa – New LNG demand center
Arab Governments are considering LNG, not as an option, but as a need. The Arab countries are benefitted from close proximity of Qatar – worlds’ largest LNG exporter and pouring supply from the US and Australia. In 2009, Kuwait became the first Gulf country to import LNG by chartering an FSRU as the domestic production has not kept pace with the rise in gas consumption. Bahrain is set to become an LNG importer using an FSRU, with the LNG to be regasified onshore by 2018. The facility will initially import 3.25 mtpa but the capacity can be doubled if needed. Similarly, after Dubai and Abu Dhabi, Sharjah is also planning to import LNG by mooring an FSRU. Sharjah National Oil Co. (SNOC) and Germany’s Uniper has recently signed a MoU to form a company, responsible for importing the LNG for the Emirates. Jordan started importing LNG using an FSRU Eskimo from Golar since 2015 as around 82% of Kingdom’s power generation relies on LNG. Saudi Arabia announced energy-pricing reforms in early 2016 and could consider importing LNG in the future to reduce its dependence on oil for power generation.
Likewise, several African countries are looking to start importing LNG in the coming years. The list includes Ghana, Ivory Coast, South Africa, Benin, Namibia, Senegal and Kenya. Although, Egypt joined the LNG-buyers’ club by using an FSRU in 2015 by leasing two FSRU units at Ain Sokhna due to major gas shortage amid falling output and rising energy consumption. However, Egypt’s prospects for becoming a net LNG exporter again are more promising as the country will develop the giant Zohr gas field after 2020.
Some African nations are blessed with massive gas reserves, but the full potential production may take a long time to bring those gas fields online. Meanwhile, a combination of FSRU and LNG looks like a quick and stopgap solution to feed the power plants and industries. Ghana will be the first sub-Saharan country to import LNG. An FSRU is currently moored outside the Port of Tema and the country expects imports to begin in Q2-2017. Ghana’s second FSRU will be installed at Takoradi in the west. South Africa and Ivory Coast are also planning to moor their first FSRUs by 2019. South Africa is moving ahead with installing two FSRUs – one each at the ports of Richards Bay and Coega – and may add a third unit at a later stage. The FSRU at Richards Bay will cater for a proposed 2 GW power plant, and the one at Coega will serve a planned 1 GW plant. Ivory Coast have similar plans to install an FSRU by 2018 to supply gas to the country’s power sector.
Likewise, UK giant BP is considering options to import LNG into Mozambique to feed gas-fired power plants and helps in downstream industrialization. Despite its strong offshore gas reserve base, the domestic market still has to wait until 2023 when Anadarko’s 12 mtpa onshore LNG plant is expected to come on-stream. The Kenyan government is in talks with two FSRU companies that would be able to fund and install an LNG import vessel at Mombasa. Kenya previously tendered for an LNG terminal at the city’s port but subsequently cancelled the project. However, low prices and a developing spot LNG market have put LNG back on the agenda.
Although not all of the proposed projects will materialize, even a handful of successful projects could prompt incremental demand for LNG from buyers in the region.
“The Middle East & Africa has an LNG import capacity of 50 mtpa, almost 81% of which is in the form of FSRUs”
Europe’s alternative to Russian Gasman – Incremental LNG supply and FSRU
In Europe, Italy and Lithuania are using FSRUs for importing LNG. Italy may float a tender for leasing a second FSRU in the near future. Turkey commissioned its first FSRU at Aliaga, north of the port city of Izmir in December last year. Turkey’s interest in FSRUs follows several years of gas shortages during mid-winter peak demand periods. European countries are looking for new options to reduce the dependency on Russian gas, thanks to the incremental LNG supply from the US and Australia. New development in the region include Poland, Greece and Ireland. Polish state-owned grid operator Gaz-System is planning for a floating LNG import terminal to be moored at Gdansk bay after 2020, as a probable alternative to build new pipelines to step up Norwegian gas imports. In Greece, the port is being developed as the north Aegean’s gas hub where it is planned to locate an FSRU. On the same line, Ireland may consider installing an FSRU for importing LNG if the UK decides to raise transit tariffs for piped gas post-Brexit.
Don’t forget Latin America
Brazil first began importing LNG in 2009, using two FSRUs – Excelerate Experience and Golar Spirit. A third FSRU came online in 2013 with Golar Winter. With increasing gas demand in the country, Brazil is likely to float a tender for three more FSRUs by 2018, however, it would be interesting to see how many actually come online from the proposed list. Argentina is also seeking to charter a large FSRU near Bahía Blanca and is looking to secure its first LNG cargoes by 2018. The Colombian FSRU project entered its start-up phase when Höegh Grace arrived in Cartagena early November 2016. Other countries are also due to launch FSRU- based imports including Chile, Puerto Rico and Uruguay. Höegh LNG is set to provide an FSRU for Penco Lirquén, which will be Chile’s third regasification facility. The project is expected to cost around $650 million, and the US is likely to supply the cargoes.
Emerging buyers soothes the LNG exporters
Around 100 mtpa of additional LNG liquefaction capacity is expected to come online between 2017 and 2020. Demand and supply on the LNG market won’t be aligning anytime soon. However, decline in LNG imports from traditional buyers – Japan and South Korea is partially offset by increasing LNG imports elsewhere in the world, giving the LNG sellers some relief. The second tier – smaller markets are responding to domestic needs, but the amount of LNG they import will be dictated by price and infrastructure capacity. Low LNG Prices and quick infrastructure offered by floating LNG terminals, making sense for the new entrants. These FSRUs have played a phenomenal role in aligning the LNG demand-supply, albeit to an extent. FSRUs will be a key component of making the coming glut manageable as the LNG market matures. There are a number of challenges on the horizon for the FSRU industry, however looking ahead, demand is continuing to increase – many FSRU projects are currently being considered over land- based LNG import terminals. LNG glut, low LNG prices, increasing spot market liquidity and new emerging buyers support and confirm the continued growth of the FSRU segment in the future.