The approval for the Shell Prelude project by the Australian environment ministry in recent weeks represents a key milestone in the development of the offshore LNG industry. It is the first time a proposed floating LNG (FLNG) production vessel has been sanctioned at the highest government level.
Although FLNG schemes have been mooted for many years, the drive to realise offshore gas reserves by means of floating plants able to liquefy that gas has been an extended one due to the challenges involved. The twin needs of ensuring the safe handling and transfer of cryogenic cargo at an offshore location and squeezing a complex array of processing equipment on a comparatively small platform have required the mastery of difficult and pioneering gas treatment, liquefaction, containment system, vessel mooring and cargo transfer technologies.
Furthermore, the efficacy of the proposed FLNG design solutions must meet the acceptance criteria of not only all the participants in a proposed offshore LNG project but also their financial backers and the regulatory authorities.
However, despite the technological challenges and the high expenditures attendant on the FLNG designs that have been developed, offshore LNG offers undoubted advantages. For the majority of the many stranded gas deposits in remote offshore locations around the world, FLNG offers the optimum route for monetising the assets.
To develop a given volume of offshore gas floating LNG production vessels can be provided at a lower capital cost and with a reduced environmental footprint compared to a shore terminal. This is because the FLNG option obviates the need for offshore compression platforms, sub sea pipelines, ship channel dredging, land use permitting, site clearance, storage tanks, LNG carrier jetties and a range of other infrastructure associated with shore export terminals.
Approximately 300 offshore fields holding gas reserves totalling 350 trillion cubic-feet (tcf) have been identified as offering the best prospects for development using the FLNG option. The majority of these attractive fields are to be found in Australasian waters although each of South East Asia, West Africa and Latin America also possesses a healthy share of the prospects. The current build-up in FLNG momentum is being driven by the potential of these reserves and a number of recent technological breakthroughs as well as the environmental advantages of LNG.
The offshore LNG industry is expected to spend in excess of US$20 billion on floating projects over the 2010-16 period. While the Shell project to develop the Prelude field off Australia's northwest coast may have been the first FLNG scheme to secure government approval, there are other advanced proposals that could win the race to be the first to produce LNG using a floating vessel.
Shell has spent the past decade developing its FLNG technology and its design is based on a massive floating production storage and offloading (FPSO) vessel able to produce LNG at the rate of 3.5 million tonnes per annum (mta). The Prelude project timetable calls for a final investment decision in 2011 and the delivery of the FPSO from the Samsung yard in 2016. At 480 metres in length and displacing 600,000 tonnes, the unit will be the largest vessel in the world by a considerable margin.
Shell has provisionally signed up with Samsung for the construction of further similar FPSOs on the basis of a 'design one, build many' approach and the developers of the Sunrise field in the Timor Sea have proposed the use of a second Shell FPSO to realise their project. The aim is to be producing Sunrise LNG also by 2016.
In addition to the Prelude and Sunrise schemes a number of more modest LNG FPSO-based projects are currently moving quickly through the development and planning stages. Participants in the alliances promoting these projects have considerable experience of LNG vessel operations and cargo transfers and the solutions they are developing reflect this technological expertise.
The ability of the smaller vessels in these alternative schemes to make use of modular topsides equipment packages and the less onerous project financing arrangements they face could well mean that one of them is the first LNG FPSO into service. Several players are targeting 2014 as the start-up date for their FLNG projects but considerable further progress will be needed in terms of construction contracts, financing arrangements, gas sales agreements and design customising if this goal is to be achieved.
It is likely that the by the time the first LNG FPSO goes into service the regasification vessel sector will be getting ready to celebrate its tenth birthday. There are now ten LNG regasification vessels (LNGRVs) in service along with three LNG carriers, which have been converted into floating storage and regasification units (FSRUs). A further FSRU conversion is underway and the contract for a fifth has just been announced. The latter will be used in Indonesia and represents the first regasification vessel project in Asia.
Of the US$20 billion spend on floating LNG over the next five years, approximately 80 percent will go on capital-intensive production vessels and 20 percent on regasification vessels. Such is the relatively modest cost of FSRU conversions and LNGRV newbuildings that, in terms of vessel numbers, regasification vessel projects will heavily outweigh LNG production vessel schemes through 2016.
The ability of shipping interests to provide LNG regasification vessels at relatively short notice and low cost continues to attract the interest of customers seeking limited quantities of gas according to a tight time schedule.
Regasification vessel projects have already enabled the US, Brazil, Argentina, Chile, the UK, Dubai and Kuwait to fast-track gas imports while Italy and Indonesia will be joining this club shortly. The first Indonesian FSRU, to commence operations at the end of 2011, looks set to be followed by a number of similar projects as the nation strives to bring gas to a number of sites in the vast archipelago.
Beyond these nations, Jamaica, Bahrain, Bangladesh and Vietnam are poised to opt for the regasification vessel alternative to meet their rising gas consumption needs. Other candidates for an LNGRV or FSRU option include Cuba, Croatia and Cyprus. The ease of redeployment and other flexible attributes of regasification vessels are attractive to gas buyers whose requirements may only be seasonal or limited initially until that time when a shore terminal is warranted.
The breakthrough in the LNG FPSO sector with the Shell Prelude project and a welter of LNG re-gas vessel developments have made 2010 a standout year for offshore LNG. While the benefits offered by regasification vessels are more immediately attainable, the extensive research and development programmes that underpin the various proposed FLNG projects are poised to pay dividends. As a result of steady resolve, cooperative team effort and the commitment of considerable resources, momentum in the floating LNG sector is reaching a critical level.
Mike Corkhill
