Latest on LNG liquefaction and Re-gasification technology: FLNG Route

The year 2008 was a difficult one for the LNG industry. Economic turmoil had hit demand
in the core Asian consumer base and the completion of several high-profile liquefaction
projects had led to oversupply in the market.

One glimmer of light amongst the doom and gloom, however, has been floating liquefied
natural gas (FLNG), where interest has never been higher. Shell’s award to the
Samsung/ Technip joint venture in the summer of 2009 indicates that participants
throughout the value chain, from technology providers to major upstream players, are
now prepared to commit to investment in this sector.

However, FLNG liquefaction is not a new idea. The concept has existed since the 1950s
when an LNG plant was installed on a river barge in Louisiana. Since the 1970s
conceptual studies have taken place to try and utilize this technology in offshore
situations but these studies did not see further development. Moving liquefaction
technology offshore presents a number of design challenges compared to conventional
hydrocarbon production and transportation, approaches that were favoured by energy
companies in the past.

Conceptual studies

However, in recent years, the rising global demand for gas has caused many energy
companies to refocus their attention on the development of their gas reserves. Long-
term global gas demand fundamentals remain strong despite the global recession and
the Asian consumer base is expected to recover to its 2008 import levels by 2011. From
that period onwards, the LNG industry is likely to move from a supply surplus to a deficit.
This is because major onshore liquefaction projects have been delayed in recent years
and continue to see delays in final sanctioning.

Vast gas reserves are located far from any existing infrastructure such as pipelines and
gas processing facilities and therefore the construction of onshore LNG terminals is
often unfeasible. The Timor Sea Joint Petroleum Development Area, is an excellent
example of this, as sub-sea pipelines to the nearest shore (in this case Timor-Leste)
would have to cross the Timor Trench, which reaches a depth of 3,300m at its deepest
point. FLNG has been seen as a potential solution to this problem and many fields in this
area – such as Prelude and Greater Sunrise – have been identified as possible FLNG
vessel locations.
Solution to problem of associated gas?

FLNG liquefaction has also been seen as a potential solution to the problem of
associated gas – gas that is produced during oil exploration and production. In areas
where there is little infrastructure for the gas it has traditionally been re-injected or flared,
which is extremely wasteful as well as damaging to the environment. Mid-size FLNG
vessels (1-2 mmtpa) are seen as a viable way to allow utilization of these smaller
quantities of gas.

Despite its potential benefits, as mentioned previously, moving liquefaction technology

offshore creates design challenges, particularly regarding the reduction in size or
‘footprint’ of the necessary liquefaction or regasification process equipment in order that
it can be accommodated on a vessel. Other challenges include the use of specific
containment and offloading systems. For example, sloshing, which occurs when the
movement of the ship causes a violent liquid motion in the tanks, is a major problem in
the storage of liquefied gas – and is heightened when the vessel is partially full.
Membrane-type containment systems, which are found on over half of the current LNG
carrier fleet, are particularly vulnerable to sloshing damage and therefore are mostly
unsuitable for situations where the vessels spend a large amount of time partially
loaded, such as FLNG liquefaction terminals.

The Kvaerner-Moss Spherical containment system is also relatively unsuitable for FLNG
liquefaction applications as it limits deck space, which is needed for the all-important
topsides.

Potential FLNG liquefaction vessel designers are increasingly moving away from the
existing systems mentioned above to either IHI’s prismatic SPB, which is currently
operational on two LNG carriers, or to new prismatic containment systems that are
designed specifically for FLNG applications, systems such as Aker’s Aluminium Double
Barrel Tank (ADBT) and Sevan Marine’s LNG FPSO containment system. These
systems are sloshing resistant and offer a flat deck space. The majority of FLNG vessel
designs revolve around new builds. However, the world’s first LNG carrier to LNG FPSO
conversion is likely to be the Arctic Spirit – one of the two existing carriers with a
prismatic containment system. Both membrane and spherical-type containment systems
have been successfully used on FLNG re-gasfication vessels. These vessels are often
located in sheltered ports such as Bahia Blanca in Argentina, Pecém and Guanabara
Bay in Brazil and Teesside in the UK where weather and ocean conditions are less
severe than the open sea. The deck space required for regasification equipment is also
much lower than for liquefaction, which allows FLNG regasification developers such as
Golar LNG to convert their spherical-type LNG carriers to floating, storage, regasification
units (FSRUs).

Ship-to-ship transfer

As for offloading systems, ship-to-ship transfer is currently one of the least proven
technologies in the LNG Industry and therefore is the focus of much research, design
and testing. Most of the operational floating regasification terminals use loading arms,
similar to those that have been used at onshore terminals for more than 40 years. This
technology is proposed for Flex LNG’s LNG Producer vessels. Flex has an EPC contract
agreed with Samsung Heavy Industries for four of these vessels. Side-by-side
offloading, which is likely to be the most common use of loading arms in offshore
situations, has its problems. Sea states of more than approximately 2.5m significant
wave height are likely to make side-by-side offloading impossible. In areas where such
sea states prevail a different solution is required. An alternative offloading system is a
cryogenic hose. This is designed to be used in situations where hostile sea conditions
make it difficult to use loading arms. The first transfer of LNG between two vessels using
cryogenic hoses took place at the UK’s Teesside GasPort in 2007. Since then this
emerging technology has been the focus of much research and development.
FLNG liquefaction technology may still be a challenge, but FLNG regasfication is already
a proven technology, with five operational terminals in Brazil, the UK and the USA, and
is fast becoming the solution of choice for countries that want fast-track or temporary
import solutions. While onshore terminals still retain their comparative advantage when
larger import capacities and storage are required, FLNG’s advantages lie in its quick
lead times and flexibility. Focus areas for FLNG regasification terminal development
include Western Europe and the Mediterranean rim, parts of the Middle East and Latin
America. The cost and construction time advantages are proving alluring even in
countries such as India and China, which have traditionally favoured onshore
development solutions. Indonesia, with its stranded gas fields and rapidly growing cities,
is a focus for both floating liquefaction and regasification terminals.

In the past, the USA has been seen as a major driver of FLNG activity. The country has
two FLNG regasification terminals in operation: in the Gulf of Mexico and offshore
Boston, Massachusetts. However, many promising offshore projects in the USA have
been delayed, due to a number of factors including the strict regulatory system, not-in-
my-back-yard attitudes, and environmental concerns regarding the open-loop system
and its effects on marine habitats. The unprecedented increase in domestic
unconventional gas reserves such as shale gas, seen recently, has also caused some
developers to rethink their plans for importing LNG into the USA. Ultimately the USA is
still likely to require significant LNG imports to meet demand post 2015. In the meantime,
import levels are likely to be determined by the balance of the cost of shale gas
production (which is comparatively expensive) against spot prices for LNG cargos.
Douglas Westwood Limited forecasts $23 billion to be spent on FLNG facilities over the
2010 to 2016 period. Despite a large number of FLNG regasification projects, the vast
majority of this capital expenditure will be spent on liquefaction terminals as capex
associated with a floating liquefaction terminal is more than triple that of a typical floating
import terminal.

The capex forecast is the output of a market model built on a project-by-project review of
development prospects, with the timing of expenditure phased to reflect likely project
structure. This model has been developed in consultation with industry experts and also
sense-checked to account for external factors such as supply chain constraints. The
forecasts are segmented by services such as technology licensing, front end
engineering and design, project management and detailed design engineering,
construction engineering (field engineering), construction and installation (hook-up and
commissioning).

Australasia and Africa, due to their FLNG liquefaction projects, account for the biggest
proportion of forecast capex. North America, despite having the largest number of import
terminal prospects is only expected to account for $1.6bn or 7 per cent of the total capex
between 2010 and 2016. In conclusion, then, it is clear that, within the last year, interest
in FLNG (both liquefaction and regasification) has grown substantially. This is a trend
that is likely to continue over the next seven years. Commitment from majors such as
Shell in the groundbreaking floating liquefaction sector serves as an indicator of the
confidence in the future of the FLNG industry. Australasia and Africa remains the focus
of FLNG liquefaction projects, largely due to the number of stranded gas fields in region
as well as concerns over gas flaring. FLNG regasification projects are focused on
countries which experience or are expecting to experience seasonal demand spikes and
therefore need fast-track projects in order to meet this increased demand.