FLNG - A new dawn? - Part 2

In Part 1, I reviewed the current FLNG projects, both onstream and under construction. In this second part, I will take a look at these projects in terms of some of the optionality for FLNG projects. Whilst not a comprehensive list of options, it will give us an idea of some of major alternatives under consideration, with the starting point being the feedstock that will underpin the project.

Feedstock

Back in the infancy of FLNG, there were two big pitches for the potential application for the the technology:

• Stranded gas field: The first was to monetise a stranded gas field (or a combination of gas fields) with sufficient resources to underpin a traditional onshore LNG liquefaction development. However, an onshore plant wasn't feasible, either because the economics didn't work due to the field being too remote, or bringing gas to shore was considered too risky.
• Associated gas: The second was to monetise associated gas production from a number of producing offshore oil fields, where the gas was currently either being flared or reinjected. This solution was often proposed for some the deepwater oil plays being developed in Latin America and Africa, where the absence of any gas infrastructure or domestic gas market made monetisation of a single field uneconomic. The main alternatives to this option were to develop gas infrastructure for these fields and then either develop a domestic gas market or build an onshore liquefaction plant to allow access to LNG markets.

More recently, we have seen a third option arrive:

• Pipe gas: This third feedstock option is based on taking advantage of the price differential between different gas markets. If the differential is large enough then pipeline gas can be taken from one market, liquefied, transported to the other market, then regasified and still leave enough margin for profit. The key example of this is the US lower-48, where the sheer volume of produced gas from unconventional plays has created this kind of price differential. It is incredible to thin that the first LNG cargo from the US lower-48 was only exported in 2016, with the rapid growth meaning the US is now rivaling Qatar and Australia as the world's largest LNG exporter. To-date, these LNG export projects have all been based onshore but NFE's fast LNG in Mexico will see the first application of FLNG when it comes onstream.

The chart below takes a look at the trends in these three feedstock options:

Location

The next key consideration is where the FLNG vessel will be located, with two differentiated options:

• Offshore: for this first option, the FLNG vessel will be located offshore, generally meaning at (or close to) the offshore field(s). The transportation distance (and therefore cost) of getting the gas from the field to the FLNG vessel will be minimal but the vessel will need to have a mooring system designed for the metocean conditions at the field.
• Near-shore: for this option, the FLNG vessel will be located close to the shore, either moored at port or at a sheltered near-shore location that will allow an LNG carrier to moor alongside to load.

Front-end (field) processing

One of the key considerations for an FLNG unit is the degree of integration of upstream processing facilities (separation, liquids processing, gas processing etc.) into the FLNG vessel. The more integration of these facilities, the more specialised the vessel and therefore the more challenging it would be to relocate the vessel. I have split the project list into two primary processing choices:

• Fully integrated processing: in this case, the FLNG facility is designed to handle the raw produced fluids from the field(s). This is generally seen for Offshore FLNG vessels for stranded gas fields. Examples of this would be Prelude and the Coral vessels.
• Limited processing: in this case, the FLNG vessel is designed to handle gas that has already been processed, with the FLNG vessel limited (as much as possible) to the liquefaction facilities. Some front-end processing may be required based on the quality of the gas coming into the vessel. This limited solution applies to the majority of current vessels.

Liquefaction process

There are a large number of liquefaction processes, and plenty of public research on these. For this article, I am just going to split this into two broad types based on the scale of the process:

• Large-scale: these processes offer single trains from 2 to 12 mtpa and were generally developed for baseload onshore liquefaction plants. The trend had been for increasing scale of processes and increasing efficiency. Therefore, they will generally offer better efficiency (lower OPEX / fuel gas consumption) but can be more complex and don't operate so well at reduced throughputs (turn-down). Therefore, these processes tend to be best applied where this is certainty around both supply and offtake.
• Small-scale: these processes offer single trains less than 1mtpa and are generally less efficient. However, the processes are simpler and the equipment involved is more standardised allowing a wider range of suppliers to be considered. In addition, these smaller processes can generally operate across a wider range of turn-down rates, certainly when multiple smaller trains are applied rather than a single large train. We saw these smaller-scale processes applied in a number of the recent onshore US lower-48 export projects as, at the time of construction, these were seen as being likely to be swing producers.

In addition to the scale of the process, consideration also needs to be given to how the process could be impacted by the vessel motions.

Storage

This is a fairly simple consideration, but one that has only recently emerged. .

• Integrated: Traditionally, the FLNG vessel would cover, at a minimum, the liquefaction and storage of the LNG. All of the operating FLNG vessels currently have the storage integrated.
• LNG carrier: We have started to see examples where the LNG storage is being handled by a separate, dedicated, LNG carrier. This option is generally limited to a near-shore FLNG option where both the FLNG vessel and the LNG carrier can be moored to a fixed structure and thus motions limited. New Fortress Energy's (NFE) Fast LNG offerings are the key examples here.

Hull type

As with FPSO's, there are different options for the floating hull of an FLNG vessel. The three main options are:

• Newbuild: the hull of the FLNG vessel, which is similar in design to an LNG carrier, is purpose built for the project . The vessel can therefore accommodate bespoke requirements for the final FLNG vessel but it can take up to 30 months to construct these hulls. Prelude, Coral and the Petronas FLNG vessels have all gone for a newbuild.
• Converted LNG carrier: in this case, we take an existing LNG carrier and make modifcations to the vessel to allow it to be able to host the required facilities. This could include strengthening of the hull and, potentially, the addition of extra deck space for the facilities. Golar and have gone down this path for their FLNG solutions.
• Bespoke barge: here, the liquefaction facilities are hosted on a barge that has been constructed specifically for the project. This doesn't resemble a typical FLNG carrier design and will therefore be used in benign waters.
• Other: the option to use other types of hull is opened up when a separate LNG carrier is used to store the produced LNG. NFE's solutions are the first here, with Fast LNG 1 being based on the conversion of three jack-up rigs and Fast LNG 2 and 3 based on the conversion of circular-design floating drilling rigs. I have also classified the second phase of Greater Tortue Ahmeyim FLNG in this category as the design is based on a GBS structure, similar to that of the Adriatic LNG import project.

FLNG vessel commercial structure

As per the FPSO market, the operator has the choice to look at owning or leasing the FLNG vessel. However, the number of companies offering a lease is limited with only Golar and NFE currently active in this space.

Project commercial structure

On the commercial side, we also need to consider how the various aspects of the project (upstream, liquefaction, gas marketing) fit together, this is in terms of the ownership of the various elements, the ownership of the gas / LNG and how each party is renumerated. There are three main options here:

• Fully-integrated: the upstream and liquefaction facilities are owned by the same parties, with the two elements considered as a single, integrated, investment. The gas and LNG are always owned by the same parties, with the project revenue coming from the sale of the LNG.
• Merchant: the upstream and liquefaction facilities are owned by different parties, with the upstream project selling the gas to the liquefaction project, then the liquefaction project earning revenue from selling the LNG.
• Tolling: the upstream and liquefaction facilities are owned by different parties as per the above. However, in this model, the upstream companies continue to own the gas throughout and will earn revenue through the sale of the LNG. The liquefaction project essentially provides the liquefaction as a service to the upstream companies and is paid through a toll for this service.

Final comments

Having looked at some of the optionality in FLNG, we can conclude that there are a large amount of conceptual solutions for a potential FLNG project. However, even if we can create a project that works on paper, we must remember than a new FLNG project is competing with new onshore LNG projects when it comes to finding space in the global LNG market and that the potential for oversupply will be increasing with every new liquefaction project sanctioned.