rise of the fsru and the lng market outlook

RISE OF THE FSRU AND THE LNG MARKET OUTLOOK

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RISE OF THE FSRU AND THE LNG MARKET OUTLOOK 2016

PART 1 The Global LNG Market:

Trends and Future Outlook

PART 2 Rise of the FSRU

PART 3 Upcoming FSRU Orders Map

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THE GLOBAL LNG MARKETBy Athanasios Pitatzis

Athanasios Pitatzis is an Industrial/Petroleum Engineer and Member of the Greek Energy Forum. He specializes in the development of oil & gas markets in Southeast Europe and the Mediterranean. He is also the owner of the website Energy Routes where he publishes all his articles covering the global oil and gas industry. The opinions expressed in the article are personal and do not reflect the views of the entire forum or the company that employs the author. Follow Greek Energy Forum on Twitter at @GrEnergyForum and Athanasios at @thanospitatzis.

Low LNG prices over the last two years have created a challenging business environment for new projects. According to the recent KPMG report “Uncharted Waters: LNG Demand in a Transforming Industry”, global LNG demand will face many uncertainties in the future, including:

Editors Note: This is an edited version of the article. The original can be viewed here.

SHORT TERM MEDIUM TERM LONG TERM

§ Japanese nuclear restarts

§ Ukraine crisis

§ LNG storage

§ Trading house vertical integration

§ New buyer alliances (JERA)

§ Japanese deregulation

§ Chinese economic growth

§ New Russian pipelines

§ New importers

§ Asian urbanization

§ LNG in transport

§ Renewable energy

§ Climate policy

TRENDS AND FUTURE OUTLOOK

https://issuu.com/youngpetroart/docs/24.04-youngpetro-spring17-internet-

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$4.65United Kingdom

$4.68Cove Point

$5.19 Canaport

$5.69Altamira

$2.13Lake Charles

$5.23Spain

$4.38Belgium

$5.69Rio De Janeiro

$5.73Bahia Blanca

$5.75Korea

$5.70India

$5.60China

$5.75Japan

WORLD LNG ESTIMATED JANUARY 2013 LANDED PRICES

GLOBAL LNG PRODUCTION

WORLD LNG ESTIMATED JANUARY 2016 LANDED PRICES

Source: World LNG prices January 2016, USA Federal Energy Regulatory Commission (FERC)

63%

63%

56%

53%

This is largely due to the huge increase in the production of LNG, far greater than current market demand. According to Gas Strategies, overall global LNG production will reach 270 mt in 2016, up by 22 mt (8.9%) compared with 2015.

2015 2016

270 mt

$10.47United Kingdom

$4.68Cove Point

$3.86Altamira

$3.29Lake Charles

$11.41Spain

$10.12Belgium

$12.10Rio De Janeiro

$13.20Bahia

Blanca

$15.38Korea

$13.00India

$15.00China

$15.38Japan

Source: World LNG prices January 2013, USA Federal Energy Regulatory Commission (FERC)

At present, the LNG market is transforming into a global united commodity market with increasing liquidity and competition. The effects of this change can be seen by the decline in LNG prices, more than 50 per cent in some cases, in a period of only three years between 2013–2016:

8.9% INCREASE

248 mt

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Leading up to 2020, the International Energy Agency predicts that inter-regional gas trade will expand by 40% between 2014 –2020, surpassing 780 billion cubic metres. LNG will account for 65% of the increase. Initially this increase will mainly be generated by Europe, China, and non-OECD countries in Asia:

500

400

300

200

100

LNG LNGPipeline Pipeline

OECD Asia Oceania

OECD Europe

Non-OECD Asia

China

Latin America

OECD Americas

Middle East

Africa

FSU/non-OECD Europe

2014 2020

GROWTH OF GAS IMPORTS, BY REGION, 2014 TO 2020

Source: International Energy Agency (IEA)

If we zoom into East Asia, we can also see that LNG imports declined by 3.9% between 2014– 2015. Despite the huge drop in the price of LNG, the main factors for this decline according to Cedigaz (The International Association for Natural Gas), were lower than expected economic growth in that region, gas-fuel competitiveness and weather related factors.

Whilst the current low LNG price and near-term uncertainties will make the next five years challenging, beyond that the future is looking very bright according to predictions made by Exxon Mobil in their report “The Outlook for Energy: A View to 2040”:

§ Global demand for natural gas will increase by 50% from 2014 to 2040

§Natural gas is projected to cover the 40% of the future global energy demand until 2040

§ LNG exports expected to triple globally by 2040 China Japan

80

60

40

20

South Korea Taiwan

LNG GROSS IMPORTS IN EASTERN ASIAS

2014 2015

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171

Beyond 2020, the growth in LNG demand will shift to new emerging markets:

1 Egypt (Zohr) and Argentina (Unconventional gas), both of which currently import LNG but are not forecast to do so in 2030 due to recovering domestic production

billion cubic feet per day

Source: New LNG markets key to growth, Energy Insights

Likely Emerging Markets

§ Bangladesh§ Vietnam§ Philippines§ Cuba§ Uruguay

§ Bahrain§ Ghana§ Morocco§ South Africa§ El Salvador

§ Indonesia§ Singapore§ Pakistan§ Egypt § Jordan§ UAE

§ Kuwait§ Puerto Rico§ Dominican

Republic § Argentina§ Mexico

§ Chile§ Thailand§ Malaysia § Poland

Recent Market Entrants

34

120

83

2015

2020

2025

2030

Source: Floating LNG Regasification is used to meet rising natural gas demand in smaller markets, U.S. Energy Information Administration

Of this growth, most of the recent entrants will utilise floating LNG storage and regasification unit (FSRU) solutions. This is particularly because they allow LNG to be imported quicker and more cheaply than using a land based LNG import terminal, making them cost-effective for smaller or seasonal markets. As a result, the future outlook for these vessels is promising:

0.8%1.5%

2.8%

3.3%4.5%

4.7%5.3%

6.4%8.0%

8.0%

100

120

80

60

40

20

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Floating regastification Floating regastification share of total

Onshore regastification

LNG DEMAND BY COUNTRY FOR RECENT AND LIKELY MARKET ENTRANTS

TOTAL GLOBAL LNG REGASIFICATION CAPACITY

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To support this growth, 8 LNG import terminals are expected to start up in 2016 with a total capacity of 31.1 mtpa. The two new importers, Ghana and Colombia will use FSRUs provided by Golar LNG and Hoegh LNG respectively:

LNG RECEIVING TERMINALS SCHEDULED TO START-UP IN 2016

CHINA

§Yuedong/Jieyang §Beihai§Dalian Expansion§Guangdong Dapeng Expansion§Diefu

2.0 mtpa10.0 mtpa

3.0 mtpa

3.0 mtpa3.0 mtpa2.3 mtpa

4.0 mtpa

FRANCE

§Dunkirk

3.8 mtpa

GHANA

§Tema*

COLOMBIA

§Cartagena*

Source: Gas Strategies

* Terminals using FRSU

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15 LNG exports projects are targeted to reach FID during 2016. LNG commodity prices started 2016 at their lowest level since 2009 in Asia, and the lowest in over a decade in Europe and North America. This low price will make it difficult for the projects targeting FID this year to proceed unless they significantly reduce their costs in order to be economically viable. As a result of the current LNG glut and the gradual growth in demand, market conditions are predicted to remain until around 2022 when demand from new emerging markets picks up.

PROJECTS TARGETING FID IN 2016

Source: Gas Strategies

12.0 mtpa4.5 mtpa2.1 mtpa4.5 mtpa

12.0 mtpa8.0 mtpa0.6 mtpa6.0 mtpa

5.0 mtpa15.0 mtpa2.5 mtpa

2.0 mtpa 2.5 mtpa12.0 mtpa

3.8 mtpa

CANADAUSA

§Pacific North West§Woodfibre§LNG Canada§Douglas Channel LNG§Goldboro’ LNG

§Sabine Pass Train 6§Corpus Christi Train 3§Magnolia Trains 1 to 4§Jordan Cove §Elba Island§Lake Charles

INDONESIA

§Tangguh Train 3

EQUATORIAL GUINEA

§Fortuna LNG

MOZAMBIQUE

§Coral FLNG§Mozambique LNG

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RISE OF THE FSRU AND UPCOMING ORDERSBy David Boggs

David Boggs is the Managing Director and founder of Energy Maritime Associates, which publishes market leading reports on the floating production industry, including developments requiring FPSOs, FLNGs, FSRUs, Semis, Spars, TLPs, MOPUs, and FSOs. David has 15 years experience in the Offshore Oil & Gas Industry including extensive involvement in numerous FSO and FPSO projects.

FSRU contracts have been the bright light in the floating production sector. The first dedicated FSRUs began operation in 2008 and the fleet has grown quickly in size. By 2011 there were seven units installed and this doubled to fourteen units by 2014. Energy Maritime Associates forecasts the fleet could grow by an additional 4–5 units per year through to at least 2020.

In addition, there has also been use of an LNG FSO together with onshore or barge based regas facilities. There are currently three LNG FSOs in operation with two more on order.

NEWBUILT VS CONVERSION

Five of the first six FSRUs were based on converted LNG tankers. However, since 2010, all FSRU orders have been purpose-built units. Five of these units were initially built as LNG regas vessels and are now used as permanent FSRUs.

Recently there has been renewed focus on conversions. As the LNG shipping market has deteriorated, older LNG carriers are becoming harder to employ and are therefore seeking alternate use as FSRUs and LNG FSOs. Currently there is an oversupply of LNG carriers, with at least ten 1970s and 1980s-built vessels laid-up with potential plans for conversion to LNG FSOs or FSRUs.

In addition, conversion shipyards in Asia, particularly in China and Singapore have capacity for FSRU conversion projects. At the same time, the Korean shipyards that constructed all the new FSRU units are struggling financially.

THE END OF SPECULATIVE ORDERS?

13 of the 17 newbuilt units were ordered on speculation and nine have found contracts by delivery, or shortly thereafter. Four FSRUs remain on order without a committed contract. However, as these units are ordered before the project requirements are known, the FSRU may not be a good match with the project. According to Excellerate, a speculative FSRU newbuild priced at $250-300 million USD may be too large for half the projects out there and too small for one-quarter of them.

YEARFSRU UNITS IN

OPERATION

2008 2

2009 4

2010 5

2011 7

2012 7

2013 9

2014 14

2015 18

2016 22

2017 27

2018 35

2020 40

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FSRU OWNERS

Currently there are five FSRU owners with units in operation. Four additional companies have units on order. Golar leads the way with eight units, closely followed by Excelerate and Hoegh with seven units each. Excellerate has moved its LNG regas vessels into the FSRU market, while Golar and Hoegh have expanded rapidly by ordering the majority of their FSRUs on speculation. BW Gas and Exmar followed this example and placed speculative orders in 2013 and 2014.

New players are also entering the FSRU market, including LNG ship-owners, such as MOL and Gaslog, as well as FPSO contractors like Bumi Armada.

THE FUTURE?

FSRU orders will be divided between newbuilds, conversions, redeployment of LNG REGAS VESSELS, and regas barges with LNG FSOs. Energy Maritime Associates is tracking 40 projects that could require an FSRU and/or LNG FSO. In the next five years Energy Maritime Associates forecasts:

§ 4–6 orders for newbuilt FSRUs (most will be 170,000m3)§ 4–6 contracts using existing LNG regas vessels or redeployed FSRUs§ 5–7 orders for regas barges with LNG FSOs§ 2–6 orders for converted FSRUs



Click here information about current FSRUs

These two interactive maps represent the global fleet of FSRUs in operation, those currently on order and the projects still in the planning phase. This information was kindly provided by Energy Maritime Associates.

THE GLOBAL FSRU MAP - 2016 AND BEYOND



Click here for planned projects

These two interactive maps represent the global fleet of FSRUs in operation, those currently on order and the projects still in the planning phase. This information was kindly provided by Energy Maritime Associates.

THE GLOBAL FSRU MAP - 2016 AND BEYOND



n 6-7 September 2016

n Amara Sanctuary Resort Sentosa, Singapore

GAIN NEW INSIGHTS TO KEY ISSUES, INCLUDING:§Market opportunities for FSRU projects in the Asia Pacific region

§ Key project updates from experienced project owners including Indonesia, Malaysia, India

§ Latest FSRU technological innovation and solutions including offloading applications, LNG carrier conversion, ship-to-ship transfers

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AGENDA

FEATURING

Bara FrontasiaOperation and Commercial Director, Nusantara Regas

Parth JindalManaging Director, Höegh LNG

Stephen ThompsonManager LNG and Natural Gas, Poten & Partners Australia

Karthik SathyamoorthyPresident, Galway Group

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