Floating into the future
  from: Offshore Engineer
  by: Adrian John and Steve Robertson
  Tuesday, April 29, 2008

The key market drivers for offshore LNG, current offshore liquefaction concepts and key enabling technologies are examined here by Douglas-Westwood’s Adrian John and Steve Robertson.

The LNG business as a whole has grown substantially in recent years with the completion of some major high-profile LNG projects – including onshore liquefaction plants in Equatorial Guinea and Norway. Notably, there has been a growing trend towards the use of offshore LNG solutions, particularly for import terminals in North America and Western Europe.

However, there is now also renewed interest in offshore liquefaction solutions and it is possible that the world’s first offshore liquefaction project could be installed as early as 2011.

Capital expenditure on offshore LNG import terminals (and liquefaction plants) is expected to grow from $150 million in 2005 to more than $1.1 billion in 2009 and 2010.

Offshore LNG drivers

There are a number of issues facing the LNG business as a whole – most notably rising engineering, procurement and construction (EPC) costs, local opposition to onshore LNG facilities, and geopolitical issues. Despite strong demand-side fundamentals for LNG, escalating EPC costs and geopolitical issues have caused many final investment decisions for major liquefaction projects to be delayed or postponed. This is set to lead to supply-side constraints beyond 2011 that will limit the growth rate of the industry.

Additionally, in North America and Western Europe, in particular, there has been considerable opposition to many plans for onshore LNG import terminals. This has led to an increased number of offshore proposals, such as floating storage and regasification units (FSRUs). In fact, FSRU proposals are now becoming increasingly common as they often offer a much quicker method of developing a project than onshore solutions.

The key drivers for the development of the offshore LNG import and export markets are summarised as follows:

• Monetisation of stranded gas reserves - significant amounts of natural gas reserves are located a long distance from the end market, or have no nearby pipeline infrastructure.Without access to markets, the produced gas is either flared or re-injected. LNG offers an access mechanism, a method of monetising these gas reserves and reducing the environmental impact that is associated with gas flaring.
• Technological progress - advances in technology have overcome previous economic and practical problems (eg motion control, partial loading issues, and LNG transfer).
• Opposition to onshore facilities - the 'not in my back yard' (nimby) attitude has lead to increasing use of offshore solutions. 
• Security of supply - the perceived vulnerability of onshore facilities, particularly in politically difficult regions, is leading E&P companies to give serious consideration to the benefits of offshore solutions. 
• Environmental concerns - there is a desire to avoid flaring and unnecessary re-injection in remote areas.

Enabling technologies

Taking LNG regasification and liquefaction facilities offshore presents a number of design challenges. Issues relating to methods of ship-to-ship transfer and sloshing in partially filled tanks is common to both regasification and liquefaction. Additionally, for offshore liquefaction solutions there is a need to reduce the size or more specifically the ‘footprint’ of the process equipment in order that it can be accommodated on a floating platform.

The issue of sloshing in partially-filled tanks is only an issue for solutions that sought to make use of membrane-based tanks, rather than Moss spherical tanks or IHI Prismatic tanks. However, it is worth noting that this does not preclude membrane tanks as a potential solution for offshore regasification and liquefaction projects, as the issue of sloshing can be removed through strict application of operating parameters.

The more significant issue for offshore LNG projects is that of transferring LNG from one vessel to another. Owing to metocean conditions, it is not possible to use the same fixed loading/unloading arms used onshore. Nonetheless, there is a variety of solutions proposed for this problem.

There are three solutions of particular note, as they are very different from the onshore solution. Firstly, there is the sideby- side ship-to-ship transfer method that makes use of flexible cryogenic hoses. Excelerate and Exmar successfully carried out such a transfer in February 2007. However, this method of LNG transfer has a limited operating window and can only be carried out in relatively enclosed benign waters. Furthermore, the transfer rate is presently too slow to be commercially acceptable – though it is hoped that development of larger diameter hoses will solve this issue.

With the limitations of side-by-side transfer, stern-to-bow solutions offer much more operating flexibility. The Amplitude LNG Loading System (ALLS) being developed by a joint industry project is one example of a stern-to-bow solution. ALLS makes use of a flexible cryogenic hose developed by Technip and it is expected that this stern-to-bow method will greatly improve the operating envelope of loading and discharge of LNG in open sea conditions. A full scale test plant is presently under construction at Gaz de France’s Montoir de Bretagne receiving terminal.

However, the solution that will ultimately offer the most flexibility for the offshore LNG business and significantly reduce the need for costly modifications to be made to current LNG carriers is a floating version of the JIP flexible hose system. Such a system will allow the hose to be connected either to the LNG carrier’s midship manifold or to a specially designed bow manifold.

Technological advances in LNG liquefaction have also reduced the amount of equipment required for offshore compared to existing onshore plants – principally in the refrigeration cycle. Furthermore, Statoil mounting the process units for Snøhvit on a barge prior to final installation has provided valuable knowledge and experience that will undoubtedly aid in the development of more efficient ‘footprint’ (OE April 2002).

Import terminals

Receiving terminals are undoubtedly the most advanced of the offshore LNG developments. In most cases the technology needed to enable these developments is already well-proven in other applications and so development work has mainly centred around matters such as partial loading of LNG containment systems and the development of offloading systems – including ship-to-ship transfer of LNG.

Overall a wide range of terminal types have been proposed, including FSRUs, fixed platforms with salt dome storage, and underwater mooring buoys to name but a few. The first offshore terminal came into service in 2005 – the Gulf Gateway project in the Gulf of Mexico (OE April 2005). The system employed at Gulf Gateway requires the LNG carriers to unload the cargo via a special underwater mooring buoy – the STL system developed by Norwegian firm APL. Then in early 2007, the Teesside GasPort LNG project was installed in the UK. This project makes use of LNG regasification vessels (LNGRVs) that receive cargoes via side-by-side ship-toship transfer and regasify the LNG prior to unloading it via an onshore highpressure gas arm.

A total of 16 projects are currently expected to be completed over the 2007- 2011 period at a cost of $3.7 billion. This accounts for 14% of global import terminal capex for the period. However, this figure may well rise considerably owing to the short period required to convert an LNG carrier and install it as a FSRU. The Teesside LNG project, for example, came to fruition in less than 12 months. As a consequence of these short lead times, there have been many orders and proposals for fast-track FSRU import terminal, as governments around the world look to meet growing energy demand through LNG imports. Many projects have been announced for such FSRU fast-track solutions, including projects in Brazil, Mexico, Pakistan, Cyprus, Kuwait, and Dubai. There are other major offshore LNG import terminals expected to be installed in US, Italy, and Chile that will make use of varying solutions.

Offshore liquefaction plants

Though liquefaction plants have never been installed offshore, the idea is far from a new concept. There have been a number of conceptual studies in recent years. Statoil and Shell worked with Aker Kvaerner and Linde to develop a concept for the Nnwa/Doro development; the proposal was for a floating LNG barge with a single train producing 5.8 million tons per annum (mmtpa) of LNG, along with smaller amounts of condensate, propane, and butane. Almost 60,000t of topsides would be required for the proposed scheme and four years would be required from project sanction to operation. This long lead-time is in line with onshore facilities, so offers no real fast-track benefits – though, in light of the threat of attacks on onshore oil and gas facilities in Nigeria, such a scheme would offer enhanced security.

Other notable proposals for large-scale floating liquefaction plants have included Shell’s FLNG solution for the Greater Sunrise development off Australia and perhaps more interestingly its older floating oil and natural gas (FONG) concept, which is designed for oil fields containing significant quantities of associated gas where re-injection and flaring are not an option.

However, despite many conceptual studies, some of which have been on drawing boards for decades, there are not yet any firm plans to construct a largescale (greater than 3mmtpa) offshore liquefaction terminal.With this perceived reluctance of upstream exploration and production companies to sanction largescale floating LNG liquefaction projects, it seemed that floating LNG was a concept that would still not come to fruition for many more years to come. However, midstream LNG players have identified the potential of floating liquefaction solutions to monetise stranded reserves – particularly on smaller fields with reserves of 1-5tcf – and are hoping to have commercial solutions available as early as 2011. The likes of Hoegh LNG, SBM Offshore, BW Offshore, Sevan Marine, and Flex LNG are all now making efforts to commercialise their various concepts.

The Flex LNG and Hoegh LNG concepts are currently the most advanced of the concepts targeting ‘small’ gas field development opportunities. Flex LNG has ordered three 90,000m³ SPB IHI containment system LNG carriers for delivery in 2010 and 2011. This type of containment system allows partial loading of the vessels without any risk of sloshing. The vessels cost around $220 million each, which does not include the additional costs of installing liquefaction hardware, and are expected to have a production capacity of around 1mmtpa. The liquefaction technology to be installed on the vessel is all proven in onshore applications.With overall project costs expected to be in the region of $600 per ton of annual (tpa) capacity, as compared with figures as high as $1500/tpa being talked about for some onshore liquefaction projects currently awaiting final investment decisions, this concept is set to offer a viable economic solution for gas field developments. In fact, Flex LNG recently signed a memorandum of understanding with Peak Petroleum (Nigeria) for the development of the Bilabri and Orobiri natural gas reserves. The contract, which is set to start in 2011, is for 15 years and anticipates production of at least 1mmtpa. The company has also signed a letter of intent with an LNG market participant for another of the vessels on a 20-year contract.

Hoegh LNG has teamed up with Aker Yards and ABB Lummus Global to build a large capacity FPSO unit – 315m long and 52m wide – based on the Q-Flex hull design and capable of producing 1.6mmtpa LNG and 0.5mmtpa LPG. Overall project costs are expected to be somewhere between $800/tpa and $1000/tpa – also a significant improvement on some of the current project costs for onshore facilities. The concept is set to be available as soon as 2011, but more likely 2012.

With over 330 offshore gas field discoveries with reserves in the 1-5tcf range Flex LNG, Hoegh LNG and other concepts are targeting, it is clear that this market has strong growth potential. Projected costs are around $600 million for a 1mmtpa Flex LNG concept and between $1.6 billion and $2 billion for a 2mmtpa Hoegh LNG project. Comparing this to current levels of offshore LNG capex (currently import terminals only), it is obvious that the offshore LNG regasification and liquefaction market is set for a period of significant growth in annual capex.

Conclusions

Investment in offshore import terminals is expected to grow strongly between 2007 and 2011, as offshore solutions become an increasingly popular choice for operators to both fast track projects and overcome local opposition.

The emergence of a variety of concepts for offshore liquefaction plants, coinciding with the development of LNG transfer systems with flexible operating windows, is set to make offshore liquefaction an increasingly viable solution for gas field development. Ultimately, beyond 2011 this will lead to particularly strong growth in annual capex levels in the offshore LNG market. OE

About the authors

Adrian John is an analyst with business research provider Douglas-Westwood Ltd (DWL) and lead author of its World LNG & GTL Report 2007 (www.dw-1.com). With an honours degree in engineering from Cambridge and a background in the engineering and construction industry, he has conducted market analysis for a variety of the company’s clients in the oil and gas sector as part of commissioned research, commercial due-diligence and published market studies.

Steve Robertson, assistant director and manager of oil & gas at DWL, has previously authored a number of The World series of market reports including The World LNG & GTL Report and is editor of the latest edition. He has led DWL’s work for a variety of commissioned LNG sector engagements ranging from small technology players to major oil companies as well as conducting analysis in areas such as oil & gas field development, subsea production, floating production and MMO.

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