LNG business took a hit last year as the economic downturn put the brakes on global natural gas demand just as US shale gas output started to surge. Infield Systems’ Peter Kiernan reviews the changing gas market fundamentals and assesses the chances of an early breakthrough on the floating LNG front.
Global gas demand declined by 2% in 2009 over 2008, and the ramp up of production of unconventional gas in the US has had an impact on other gas field and LNG development plans, such as the announced delay in the Shtokman offshore gas project in the Russian Barents Sea. Although global demand for LNG is expected to continue to increase, the pace of growth is now forecast to be slower than previously expected.
Nevertheless, as global demand for LNG recovers over the longer term, driven mainly by Asia, the prospects for the LNG market will likely improve. Infield Systems expects continued growth in global liquefaction capacity, driven mainly by capacity increases in the Middle East.
Furthermore, the recent weak fundamentals – and other potentially mitigating factors such as cost and logistics – have not detracted from the potential in the longer term for the development of a floating liquid natural gas sector (FLNG) to contribute to global LNG supply needs in the years ahead.
Infield’s first market forecast report on the nascent FLNG sector, the Global perspectives offshore LNG market update to 2016, provides a forecast for global capital expenditure for both offshore liquefaction and regasification. As well as identifying prospective offshore fields suitable for the FLNG sector around the world and highlighting proposed FLNG projects and key industry players, this report also provides an analysis of the market dynamics for the FLNG sector in each region and gives an overview of critical issues impacting both offshore liquefaction and regasification.
While there are inherent financial and technical risks associated with offshore liquefaction and regasification, Infield expects many of these risks will be overcome.
Overall, the development of a viable FLNG market will likely continue throughout this decade, driven by technological advancements and gradually improving market fundamentals.
FLNG capex forecast
Capex in the FLNG market is forecast to total just over $20 billion 2010-16. Approximately 75% of capex will be directed towards offshore liquefaction projects, with the remaining 25% directed towards offshore regasification (this forecast capex includes the associated costs of building FLNG assets but not the upstream developments associated with each offshore project).
Australasia and Asia are likely to attract the lion’s share of capex on offshore liquefaction projects (34% and 30% respectively), and it is in these regions that FLNG projects are most likely to go ahead.
Liquefaction capex is expected to gather momentum after 2012 (subject to a number of projects succeeding at the final investment decision stage), with expenditure of $13.5 billion expected 2013-16.
Meanwhile Asia and Europe are expected to attract around two-thirds of capex on offshore regasification projects until 2016.
Currently there are no commercially operational offshore liquefaction projects. However, in recent years a number of FLNG projects have been proposed, the most significant of which include Shell’s Prelude, Woodside’s Sunrise and Petrobras’ Tupi projects.
Shell operates the Prelude and Concerto field offshore northwest Australia in the remote Browse Basin. In July 2009 the major awarded a consortium of Technip and Samsung Heavy Industries the contract for the design, construction and installation of multiple FLNG facilities. One such development, Prelude, is at the FEED stage, with a final investment decision anticipated early next year.
The Greater Sunrise fields in the Timor Sea are in the joint development zone between Australian and Timor-Leste territorial waters. Differences between the operating consortium and the Timor- Leste government over liquefaction options is delaying development of these fields. The operating consortium (Woodside, Shell, ConocoPhillips and Osaka Gas) favours the FLNG option while the Timor-Leste government favours a subsea pipeline in 200m of water that will present flow assurance issues to link the remotely-located gas to an onshore LNG facility.
Continued delays with this project are likely until the operators and the Timor Leste government reach an agreement favourable to all parties.
Brazil’s Petrobras is seeking to find ways to economically produce the associated gas reserves in the hydrocarbons-rich pre-salt Santos basin, host to the giant Tupi field where development of an FLNG project is under consideration. FLNG would enable Brazil to develop the export potential of its increasingly abundant offshore natural gas reserves, while also retaining the option for Brazil to supply the domestic market through deliveries to the country’s newly-constructed FLNG regasification terminals.
Petrobras is jointly pursuing the Santos Basin FLNG concept with a number of other firms.
In December 2009 a joint venture agreement involving Petrobras, BG Group, Repsol and Galp Energia awarded FEED contracts to three collaborative FLNG ventures: Saipem; a consortium of Technip, JGC Corp and Modec; and another consortium involving SBM Offshore and Chiyoda. The FLNG unit is expected to have a nameplate capacity of approximately 2.7mtpa, and on completion of the FEED contracts a final investment decision is anticipated by Petrobras and its partners in 2011.
While there are not yet any operational floating liquefaction units, there are some offshore regasification units already in existence.
In 2008, Brazil’s first LNG regasification terminal was inaugurated at the port of Pecem in the northeast of the country for Petrobras. The floating terminal unit has an estimated capacity of 1.5mtpa.
In 2009 a further floating LNG regasification terminal was completed, off the coast of Rio de Janeiro state in Guanabara Bay, with an estimated capacity of 3.5mtpa.
The Adriatic LNG terminal (Qatar Petroleum, ExxonMobil, Edison) is situated offshore Porto Levante in Italy. The concrete gravity base terminal structure receives imported LNG from visiting tankers and stores it in membrane tanks prior to regasification. An offshore pipeline links the terminal to the shore, enabling regasified LNG to enter Italy’s national gas grid. The Adriatic LNG terminal has a regasification capacity of 8bcm/yr, which is equivalent to approximately 10% of Italy’s current natural gas requirements.
Excelerate Energy’s Gulf Gateway offshore Louisiana, employing Energy Bridge regasification vessels and a submerged turret loading buoy system, became the world’s first offshore LNG receiving facility when commissioned in 2005 (OE April 2005). The facility remains on an operational footing, but Excelerate has chosen not to use it since Hurricane Ike damaged the region’s offshore pipeline infrastructure in 2008, focusing its efforts for now on the Northeast Gateway terminal facility the company subsequently started up offshore Boston.
Global offshore gas fields or groups of fields with combined reserves exceeding 500bcf are ranked by Infield’s FLNG report according to their suitability for FLNG development in four groups or tiers, tier one fields being the most prospective and tier four fields the least. In all, 236 proven offshore gas development groups qualify for inclusion.
Infield’s analysis reveals that 75% of offshore reserves are designated in the least prospective tier, with the bulk of these reserves located in the Middle East and Europe (mainly Russia). These regions are not seen to be very prospective for FLNG due to the extensive pipeline infrastructure that already exists as well as the suitability in these regions of onshore LNG development.
The regions that Infield views as most suitable for FLNG development are Asia and Australia. While only around 10% of reserves are grouped in the most prospective category – tier one – the bulk of these reserves are located in these two regions (164tcf out of 194.5tcf).
Furthermore, tier one and two prospects represent 31% of total identified gas reserves covering 73 development groups and a total of 315 gas fields (both non-associated and associated gas reserves).
With around 59% of reserves in tiers one and two combined located in the Asian and Australasian regions, Asia Pacific clearly emerges as the most prospective location for FLNG projects in the short to medium term.
In the longer term, natural gas consumption is expected to recover from the impact of the 2008/09 economic downturn although the increased availability of unconventional gas supplies will continue to place some competitive pressure on LNG suppliers.
Nevertheless LNG demand is expected to continue growing, albeit at a slower rate than expected just two years ago. In the longer term the prospects for FLNG development are reasonably good, with some projects already in the planning pipeline.
Should FLNG develop globally, Infield Systems expects the Asia Pacific region to see the largest share of investment and activity. OE