Many billions have been spent and the world’s floating LNG voyage is about to begin, but will this grand experiment actually go anywhere?

The conclusion of KPMG Global Energy Institute experts in a report and webcast, “Floating LNG: Revolution and evolution for the global industry?” is yes … eventually.

“Floating LNG can save costs and time if executed well,” said Hilda Mulock Houwer, Qatar-based partner and global advisory leader for energy and natural resources. “As experience is gained, future projects may achieve first gas production quicker and more cheaply.”

That experience begins in 2015 when the first two projects—Pacific Rubiales Energy Corp’s Caribbean FLNG offshore Colombia and Petronas’ PFLNG-1 offshore Malaysia—begin operations. Shell’s Prelude is scheduled to be deployed off the coast of Western Australia in 2017, followed by a second Petronas project, also offshore Malaysia, in 2018.

Between 2014 and 2020, an estimated $60 billion will be invested in FLNG projects worldwide, with production expected to reach 44 million tonnes per annum (mtpa) by 2019, or about 7.5% of global output, said Jonathan Smith, KPMG’s Perth-based partner in energy and natural resources and oil and gas sector leader.

“By 2022, there could be 22 floating LNG vessels in place, with another 22 ‘possibles,’” Smith said.

KPMG’s team devised two scenarios for FLNG development:

  • Niche: A few companies will utilize the technology to address specific problems. In this scenario, land-based plants continue to be the default option chosen by the industry, especially if the first facilities encounter cost or technical problems, or costs decline for land-based plants.
  • Standard: In this scenario, FLNG would be routinely considered along with land-based options. The technology would be open to a wider range of fields and companies, with new pricing methods and unconventional gas-to-LNG options available. This scenario opens up the possibilities of a faster, more flexible and diverse LNG industry.

Mulock Houwer compared the development of FLNG to that of floating production, storage and offloading vessels (FPSOs). That technology experienced a modest deployment of 50 vessels from 1977 to 2000, than a rapid acceleration accompanied technical familiarity that led to the installation of 100 vessels between 2000 and 2010.

While FLNG would appear to be a necessary component of the expanding global LNG industry, set to double its 2012 capacity of 250 mtpa by 2030, numerous challenges linger, especially for Australia. They include rising labor costs, workforce activism, community opposition, environmental permit approvals, remote construction locations and exchange rate movements that can be unfavorable to projects.

The average capital cost for an LNG plant quadrupled from US$300/tonne to US$1,200/tonne between 2000 and 2013. The issues encountered by Australian producers are shared by those in East Africa and Western Canada, KPMG’s report noted.

The questions do not center around the viability of natural gas or LNG, only whether and how much of the industry will float. The International Energy Agency (IEA) has already declared the coming “Golden Age of Gas” in its latest World Energy Outlook, with the expectation of a coronation of natural gas as the world’s No. 1 fuel by 2040.

“It is clear that the ‘Golden Age’ is coming and technological innovations like floating LNG may play a very significant role,” Nobua Tanaka, the IEA’s former executive director and now a member of the faculty at the University of Tokyo, said during the webcast. “Of course, there are lots of caveats to that projection, depending on the pricing of gas, the oil price—where will it go?—the current concern of the market or what China will do about the shale revolution. There are many uncertainties, but it is clear that we need diversified sources and technologies and I believe that floating LNG will play a very important role.”

A lot will depend on how the first projects perform, KPMG’s report concluded. The speed of the industry’s progress will hinge on whether the early plants are delivered on-time and on-budget, and whether they experience serious design or operational flaws. Prelude, the largest floating machine ever built by humans, will be a bellwether.

“We’ll have to wait and see how cost-effective the Shell project will be,” Tanaka mused.

The world will not have long to wait.

Contact the author, Joseph Markman, at jmarkman@hartenergy.com.

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