FSRU - Risks and Opportunities
FSRU - Risks and Opportunities
FSRU - Risks and Opportunities
Karthik Sathyamoorthy
President
Sudhanshu Haldar
Manager
Galway Group
8 Temasek Blvd, #2204,
Suntec Tower 3
Singapore 038988
www.galwaygroup.com
ABSTRACT
In the context of rising global energy demand and abundant shale gas reserves, governments
and developers across the world are considering natural gas as a viable fuel for augmenting their
energy portfolios. Increasingly, gas buyers are exploring floating regasification solutions for their
perceived speed of deployment, cost advantages, and redeployment flexibility.
FSRU solution comes in different configurations. For example, Brazil has two out of three FSRUs
converted from LNGC, whereas Uruguay is going forward with worlds biggest new-built FSRU.
However, the FSRU market is in early stages and there is an increasing need for understanding the
opportunities and risks associated with potential FSRU solutions.
This paper outlines and explores FSRU as a regasification solution, as compared to an onshore
terminal, and discusses some major risks and key drivers for FSRUs from a developers perspective.
These risks and opportunities have been discussed from investment, commercial and technology
aspects. This paper also points out some major considerations that a project developer should
weigh to gain a clear understand of whether FSRU is the right solution for the project under
consideration.
Today, FSRUs not only provide an alternate option to onshore regasification solution, but
also offer a better economic fit in many cases. In the current market, FSRUs are challenging the
traditional onshore regasification solution and with more than 20 speculative projects 2, are one of
the primary contenders for future regasification capacity. A decade of FSRU operations have built
confidence in the industry about their reliability and safety of operations. However, in certain
instances, FSRUs grapple with some technological and commercial challenges, putting them at a
disadvantage as compared to onshore terminals.
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Figure 2. Status of existing and under construction FSRUs globally [Galway Database]
The market for FSRUs can be classified into two categories: Vessel Owners and
Operators/Charterers. The current FSRU market players can be categorized as (i) Pure Play FSRU
vessel/owner companies: Excelerate, Golar and Hoegh, who have been the leaders in supply of
FSRUs, primarily because they were first movers and have successfully developed, built and
operated floating LNG vessels. (ii) Shipping Companies: Primarily existing shipping companies who
are starting to focus on floating LNG vessels, e.g., Mitsui OSK Lines (MOL), BW Offshore, Teekay,
NYK, and MISC. (iii) NOCs and government agencies: In certain cases, the NOCs and government
entities are also increasingly participating in FSRU projects to gain experience and independently
operate FSRUs in the domestic market.
Based on the current trend and popularity, it is reasonable to infer that the FSRU market is on
an upswing, undeterred by the weak commodity markets. In addition to the planned and proposed
projects, there are at least ten other speculative projects in South America, the Middle east and
Europe. These projects are expected to take FID by the end of the decade. The FSRU market is
further expected to grow. This growth will be fueled by the following factors:
The recent dispute between Ukraine and Russia raised energy security concerns among
countries in the European Union, who import majority of their gas from Russia. FSRUs
can connect these countries to global gas supplies while offering diversification in the
European Unions gas portfolio.
Importers have an opportunity to capitalize on the current low LNG prices, which are
traditionally linked to oil prices (projected to remain low). Additionally, further downward
pricing pressure is expected on account of the surplus future supplies from the US and
Australian LNG projects.
Increased development of gas fired power generation and lowering of nuclear power
dependence in Japan and Europe
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Bridging solution for countries transitioning from being natural gas exporters to importers
and countries that need temporary intermediate energy solutions while development of
large onshore terminals is underway
Bridging solution until cleaner and renewable fuels can be scalable and commercialized
Small scale opportunities for FSRUs in areas with scattered demand e.g. Indonesia
On the back of the current situation and the expected developments in this space, it is
reasonable to assume that FSRUs have the potential to develop into a highly preferred regasification
option in the future. However, there are numerous complexities technological, commercial and
operational which can undermine the prospects of FSRU project development. These potential
challenges need to be overcome for the industrys full potential to be achieved.
There are exclusion zone limitations with siting of LNG storage tanks onshore e.g.,
adherence to thermal radiation and vapor dispersion regulations;
An LNG import facility is being fast-tracked and operations have to start before
completion of the onshore storage tanks.
A developer must clearly understand various pros and cons of onshore and offshore solutions
before embarking on a development plan. The following section offers some insights on these risks
and opportunities associated with offshore regasification solutions when compared with onshore
solutions.
Key Drivers in favor of an FSRU
FSRUs are becoming increasingly popular among the new LNG regasification project developers
because of following perceived benefits
A. Lower upfront development cost as compared to an onshore regasification
facility
One of the primary drivers in favor of the FSRU option is the low upfront capital investment
requirement. A typical FSRU can cost in the range of US $250 million to US $350 million (additional
US $200 to US $400 million for associated facilities) as compared to a similar sized (gas send-out)
onshore facility, which can cost in the range of US $1.0 billion to US $1.5 billion. FSRU capital costs
are typically lower onshore regasification terminals because of following reasons:
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FSRUs do not require expensive site development and the construction of stand-alone
LNG storage tanks (each tank can costs in excess of US $150 million)
FSRUs are built in a shipyard, so there can be a better control over costs as compared to
an onshore terminal
FSRUs and associated facilities have a lower footprint as compared to onshore terminals,
thus reducing land procurement costs
Depending on the project developers needs, a further reduction in upfront cost can also be
attained by retrofitting an existing LNG carrier, or leasing an existing FSRU vessel. The latter option,
however, will result in loss of ship deck customization and can turn expensive if employed on a
long term basis.
FSRUs are built in shipyards that have years of experience in ship design and have a
better understanding of construction bottlenecks and resources at hand
In most cases FSRU projects enjoy the advantage of shorter permitting timelines on
account of fewer participants and affected entities involved. However, it is important to
note that such permitting timelines can be site specific
Speculation based inventory management by leading FSRU developers, long lasting
relationship with the shipyards and, in certain cases, standardized design.
Project delivery in such a relatively shorter time frame makes FSRU a very lucrative option for
developers who are running against the clock to meet acute supply shortages.
An onshore terminal project development is usually exposed to various potential bottlenecks
including site preparation, temporary material handling, labor shortages, equipment transportation,
and schedule mismatch among the various participants. These factors can significantly delay the
construction timeline and result in unexpected cost overruns.
C. Inherent flexibility offered by FSRU solution
Traditionally, there has been a lack of infrastructure to meet the needs of scattered energy
demand centers in archipelago countries like Indonesia or vast countries like Brazil and Argentina
with long coastlines. In such cases, distribution of natural gas (post LNG regasification) received at
an onshore facility through cross-country pipelines becomes cumbersome, expensive and
infeasible. In such cases, an FSRU presents the most optimal solution providing flexibility in location
(can be located as close to the demand centre as possible) and regasification capacity at a lower
cost of delivered gas. Some of the mentionable flexibility options provided by this solution are as
follows:
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Unlike a fixed onshore facility, an FSRU can be relocated and deployed according to the
need of downstream market. A good example of this can be seen in Brazil where a Golar
FSRU located in Guanabara Bay was relocated to Bahia, Salvador. The Guanabara Bay
FSRU was replaced by an Excelerate FSRU3.
In case of a seasonal gas demand profile, an FSRU can be used to supply gas during
periods when there is gas demand and during the remainder of the year it can be used
as an LNG carrier. This model has been adopted by the Kuwait National Petroleum
Company (KNPC), where the vessel is deployed as an FSRU for nine months and is free
to pursue other spot LNG opportunities for three months4.
An FSRU can act as a base-load solution for smaller demand centers or peak-shaving
solution for larger center.
FSRUs can be moved away to safety in case of a tsunami or similar natural or man-made
disasters.
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Yearlong demand vs. Seasonal demand: the profile of demand can be seasonal to
meet the requirements in a few high demand seasons; continuous demand profile to
meet demand in all seasons.
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Strength of an onshore terminal lies in meeting constant downstream demand and providing
continuous reliable operations, which makes it the most suitable candidate for a baseload facility.
The onshore facility also have possibility of large storage space and possibility of expansion, and
therefore, can the meet daily fluctuation of demand easily. However, an onshore facility might not
be an appropriate solution if the demand profile is not continuous or a facility requirement is shortterm or demand is scattered in the region where transporting natural gas through available
infrastructure is not feasible. Partial utilization of these onshore terminals will yield the investment
uneconomical and un-optimized.
An FSRU successfully bridges the drawbacks of an onshore facility in this regard. The inherent
flexibility of an FSRU can be used as a regasification vessel or an LNG carrier successfully meets
the utilization requirement if demand is seasonal. Alternatively, an FSRU can encompass the
capacity range from baseload to small scale requirement. The chartering option of an FSRU makes
the solution lucrative in case of a bridging solution. Historically there have been a few examples
where FSRUs are chartered for a short-term (under 5 years), like in Kuwait, till the permanent
regasification solutions can be developed. These advantages, however, shall be weighted properly
against the possible risks including send-out rates and availability that an FSRU solution can
face as discussed in the previous sections.
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Conclusion
FSRUs are the new players, in the world dominated by onshore terminals, and they offer a
unique solution in the LNG regasification industry low cost, faster delivery, location flexibility and
scale of operations that fits the need of many countries. With the world moving towards the
cleaner hydrocarbon, FSRU presents an attractive set of opportunities which makes the option
lucrative, but the technological and commercial challenges are yet to completely overcome.
A project developer must follow a structured investigation to understand how these risks and
opportunities are applicable to the development in question, and ensure such developments are
proposed based on objective rationale and mutual benefit of all the stakeholders.
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References:
[1] International Gas Union (June 2015).
[2] Galway Regasification database and World LNG Factbook 2015.
[3] http://www.gastechnews.com/lng/petrobras-starts-up-brazils-third-fsru-import-facility/
[4] http://gcaptain.com/golar-lng-fsru-igloo-kuwait/ Kuwait Petroleum Signs Charter Contract for
Golar LNGs Newbuild FSRU, gCaptain, 5 August 2013.
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