Floating on water, LNG industry is expanding offshore
Skyrocketing prices are giving new life to a technology that can process natural gas to meet surging global demand and lower carbon emissions.
Floating liquefied natural gas plants, which emerged more than a decade ago, are having another moment as countries phase out coal in favor of cleaner burning natural gas to lower carbon dioxide emissions. Growing natural gas consumption in Europe and Asia has not only helped to more than double prices over the past year, but expanded markets for LNG.
Floating LNG processors are expected to provide 5 percent of global production by 2030, up from about 1 percent today, according to industry analysts. Five floating LNG plants — known as FLNGs — are operating around the world, and four others are under construction or planned, according to the Norwegian consultancy Rystad Energy.
“There seems to be renewed interest in FLNGs,” said Kaushal Ramesh, an analyst at Rystad.
LNG technology supercools natural gas to a liquid, allowing it to be loaded on tankers and transported to markets around the world. The flood of natural gas produced by the shale revolution spurred a boom in LNG development along the Gulf Coast, led by Cheniere Energy of Houston, and U.S. energy exports.
Much as the Gulf Coast LNG plants emerged to take advantage of natural gas flowing from the Permian Basin and other Texas shale fields, floating LNG plants aim to tap offshore production. But unlike their onshore counterparts, floating LNG plants are mobile; they can be moved to exploit new sources of natural gas that would be out of reach for their land-based counterparts.
Energy companies are considering these LNG plants that operate in the ocean as a way to deliver gas to countries that otherwise might not have access to it, displacing coal that dominates the energy mix in Asia Pacific and African nations. When burned,
“FLNG kills two birds with one stone. It reduces the amount of emissions and generates revenue, and ultimately power, from a resource that's currently being wasted.”
Ben Nolan, analyst at Stifel investment bank
natural gas emits half the carbon dioxide of coal.
FLNGs also provide an alternative to venting or burning off natural gas that is released during oil production.
Oil producers often view the associated gas — particularly if pipelines are not readily available — as a waste product since it is typically not as valuable as crude. Floating LNG plants, however, can turn that waste product into a commercial one.
“FLNG kills two birds with one stone,” said Ben Nolan, an analyst at Stifel, a St. Louis investment bank. “It reduces the amount of emissions and generates revenue, and ultimately power, from a resource that's currently being wasted.”
Malaysia's national oil company, Petroliam Nasional Berhad, operates two floating LNG plants. The European oil major Royal Dutch Shell operates its Prelude FLNG off the shore of Western Australia. Belgium-based Exmar has its FLN off the coast of Argentina; Golar LNG of Bermuda operates a floating plant near Cameroon in West Africa.
Two other FLNGs, one controlled by the Italian energy company Eni and the other by the British oil major BP, are scheduled to begin operations within the next two years.
A Houston company, Delfin, is planning to build four FLNG vessels to operate in the Gulf of Mexico. The plants will be fed from pipelines running from Cameron Parish, La.
Long time coming
Research and development of designs for FLNGs began in the 1970s, but it would take decades for the first floating LNG plant to be completed. Shell began construction of Prelude, the world’s first operational FLNG facility, in 2011. Eight years later, in 2019, Prelude shipped its first cargo.
The recent surge in natural gas prices to more than $5 per million British thermal units from less than $2 last year, has revived interest in floating LNG plants. Floating LNG units are built on an existing ship or barge. By adapting existing vessels to process natural gas, FLNGs can become operational and provide a payback relatively quickly.
While it took Prelude eight years, Golar’s Floating LNG project in Cameroon was shipping natural gas in three years.
“LNG prices are really high,” said Ross Wyeno, an analyst at S&P Global Platts. “If they can liquefy and sell into that market, there's big demand there.”
Operating an LNG plant in the middle of the ocean, however, presents greater technical challenges tha__he ship, for example, can affect the performance of the super-cooling process
Floating LNG facilities have run into problems.
Shell was forced to take Prelude offline in early February 2020 after an electrical trip. The facility was shut down for 11 months before restarting production in January.
Delfin’s plans to build a $7 billion deepwater port and four floating LNG vessels off the Gulf Coast has run into delays.
The company, founded in 2013, recently asked the Federal Energy Regulatory Commission for a one-year extension on its permit to construct pipelines and other onshore facilities that will connect to the floating LNG plant.
Wouter Pastoor, Delfin’s chief operating officer, blamed the delays on the COVID-19 pandemic and the plunge in energy demand and prices that followed government-ordered shutdowns and other restrictions. But with energy demand not only rebounding but soaring, Delfin sees the tide turning, Pastoor said.
“This year the energy markets have rebalanced and we’ve experienced strong interest from LNG buyers,” Pastoor said, “as well as from U.S. (gas) producers who are keen to get a stake in the LNG value chain with exposure to international gas prices.”
Niche player
Ultimately, floating LNG plants will remain a niche player in the natural gas industry, analysts said.
Onshore LNG facilities have far greater capacity. Cheniere Energy’s Sabine Pass LNG terminal in Louisiana will boost production capacity to 30 million metric tons per year. Shell’s Prelude FLNG, in comparison, has a capacity of 5.3 million tons of LNG a year.
But as the world tries to make the transition to clean energy, and natural gas consumption increases as it replaces coal and other dirty fossil fuesl, floating LNG could have a role to play.
FLNGs “are not revolutionary,” said Nolan, the Stifel analyst. “But they might be gradually evolutionary.”