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

T
 he Global LNG Market:
Trends and Future Outlook

PART 2

Rise of the FSRU

PART 3

Upcoming FSRU Orders Map

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RISE OF THE FSRU AND THE LNG MARKET OUTLOOK 2016

THE GLOBAL LNG MARKET

TRENDS AND FUTURE OUTLOOK

By 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.

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

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:
SHORT TERM

MEDIUM TERM

LONG TERM

Japanese nuclear restarts

New buyer alliances (JERA)

Asian urbanization

Ukraine crisis

Japanese deregulation

LNG in transport

LNG storage

Chinese economic growth

Renewable energy

Trading house vertical integration New Russian pipelines

Climate policy

New importers

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RISE OF THE FSRU AND THE LNG MARKET OUTLOOK 2016

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 20132016:

WORLD LNG ESTIMATED JANUARY 2013 LANDED PRICES

WORLD LNG ESTIMATED JANUARY 2016 LANDED PRICES

$10.47
United Kingdom
$10.12
Belgium

$4.68
Cove Point
$3.86
Altamira

$3.29
Lake Charles

$11.41
Spain

$15.38
Korea

$15.38
Japan

$15.00
China

$5.69
Altamira

56%
$4.38
Belgium

$4.68
Cove Point

$5.70
India

$13.00
India
$5.69
Rio De
Janeiro

$5.75
Japan

$5.75
Korea

$5.23
Spain

$2.13
Lake Charles

$12.10
Rio De Janeiro

$5.60
China

63%

63%

53%

$5.73
Bahia Blanca

$13.20
Bahia
Blanca

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

GLOBAL LNG PRODUCTION

248 mt

$4.65
United
Kingdom

$5.19
Canaport

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

270 mt

8.9%

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.

INCREASE
2015

2016

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RISE OF THE FSRU AND THE LNG MARKET OUTLOOK 2016

LNG GROSS IMPORTS IN EASTERN ASIAS

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.

2014 2015

80

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:

60
40

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

20


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

South Korea

Japan

Taiwan

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:

GROWTH OF GAS IMPORTS, BY REGION, 2014 TO 2020

2014

2020

500
400
300
200

OECD Asia Oceania

OECD Europe
Non-OECD Asia
China
Latin America
OECD Americas
Middle East
Africa
FSU/non-OECD Europe

100

LNG

Pipeline

LNG

Pipeline

Source:
International Energy
Agency (IEA)

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RISE OF THE FSRU AND THE LNG MARKET OUTLOOK 2016

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:

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

LNG DEMAND BY COUNTRY FOR RECENT AND LIKELY

MARKET ENTRANTS

TOTAL GLOBAL LNG REGASIFICATION CAPACITY

2015
171

billion cubic feet per day

120

2020
8.0%

120

100

2025

80

3.3%

83

4.7%

6.4%

8.0%

2.8%

60

2030
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

34

4.5%

5.3%

0.8%

1.5%

40

20

Recent Market Entrants

Indonesia
Singapore
Pakistan
Egypt
Jordan
UAE

Kuwait
P
 uerto Rico
Dominican
Republic
Argentina
Mexico

Likely Emerging Markets

Chile
Thailand
Malaysia
Poland

Source: New LNG markets key to growth, Energy Insights

Bangladesh
Vietnam
Philippines
Cuba
Uruguay

Bahrain
Ghana
Morocco
South Africa
El Salvador

2006

2007

2008

Floating regastification share

of total

2009

2010

2011

2012

Floating regastification

2013

2014

2015

Onshore regastification

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

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RISE OF THE FSRU AND THE LNG MARKET OUTLOOK 2016

LNG RECEIVING TERMINALS SCHEDULED TO START-UP IN 2016

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:

CHINA

FRANCE

Dunkirk

Yuedong/Jieyang

Beihai

Dalian Expansion

Guangdong Dapeng
Expansion

Diefu

10.0 mtpa

COLOMBIA

Cartagena*

3.0 mtpa

2.0
3.0
3.0
2.3

mtpa
mtpa
mtpa
mtpa

4.0 mtpa

GHANA

Tema*

3.8 mtpa

* Terminals using FRSU

Source: Gas Strategies

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RISE OF THE FSRU AND THE LNG MARKET OUTLOOK 2016

PROJECTS TARGETING FID IN 2016

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.

CANADA

USA

Sabine Pass Train 6
4.5 mtpa

Corpus Christi Train 3
4.5 mtpa

Magnolia Trains 1 to 4 8.0 mtpa

Jordan Cove
6.0 mtpa
2.5 mtpa

Elba Island
15.0 mtpa

Lake Charles

EQUATORIAL GUINEA

Fortuna LNG

2.0 mtpa

Pacific North West

Woodfibre

LNG Canada

Douglas Channel
LNG

Goldboro LNG

MOZAMBIQUE

Coral FLNG

Mozambique LNG

2.5 mtpa
12.0 mtpa

12.0
2.1
12.0
0.6

mtpa
mtpa
mtpa
mtpa

5.0 mtpa

INDONESIA

Tangguh Train 3

3.8 mtpa

Source: Gas Strategies

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RISE OF THE FSRU AND THE LNG MARKET OUTLOOK 2016

RISE OF THE FSRU AND

UPCOMING ORDERS
By 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 45 units per year through to at least 2020.

YEAR

FSRU UNITS IN
OPERATION

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.

2008

2009

NEWBUILT VS CONVERSION

2010

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.

2011

2012

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.

2013

2014

14

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.

2015

18

2016

22

2017

27

2018

35

2020

40

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.

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RISE OF THE FSRU AND THE LNG MARKET OUTLOOK 2016

FSRU OWNERS

THE FUTURE?

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.

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:

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.

10

46
46
57
26

orders for newbuilt FSRUs (most will be 170,000m3)

contracts using existing LNG regas vessels or redeployed FSRUs
orders for regas barges with LNG FSOs
orders for converted FSRUs

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RISE OF THE FSRU AND THE LNG MARKET OUTLOOK 2016

THE GLOBAL FSRU MAP - 2016 AND BEYOND

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.

Click

11

here information about current FSRUs

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RISE OF THE FSRU AND THE LNG MARKET OUTLOOK 2016

THE GLOBAL FSRU MAP - 2016 AND BEYOND

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.

Click

12

here for planned projects

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RISE OF THE FSRU AND THE LNG MARKET OUTLOOK 2016

AD
LO A
N D
W EN
DO AG

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

FEATURING

13

Bara Frontasia
Operation and Commercial Director,
Nusantara Regas

Parth Jindal
Managing Director,
Hegh LNG

Stephen Thompson
Manager LNG and Natural Gas,
Poten & Partners Australia

Karthik Sathyamoorthy
President,
Galway Group

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