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
 he Global LNG Market:
T
Trends and Future Outlook

PART 2
 he Essential Steps
T
to FSRU Project Success:
Interview with Stephen Thompson
LNG and Natural Gas Projects At
Poten & Partners Australia

PART 3
Rise of the FSRU

PART 4
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

$4.65
$5.19
United 56%
Kingdom
$10.47 Canaport
United Kingdom $4.38
Belgium $5.75
$10.12 $4.68 $5.75
Belgium $15.38 $15.38 Cove Point Korea Japan
$4.68 $5.23
Korea Japan Spain
Cove Point $11.41
$5.60
63%
Spain $15.00 $2.13
$5.69 Lake Charles China
$3.29 China Altamira
$3.86 Lake Charles $5.70
Altamira $13.00 India 63%
India

$5.69
$12.10 Rio De 53%
Rio De Janeiro Janeiro
$5.73
$13.20 Bahia Blanca
Bahia
Blanca

Source: World LNG prices January 2013, USA Federal Energy Regulatory Commission (FERC) Source: World LNG prices January 2016, USA Federal Energy Regulatory Commission (FERC)

GLOBAL LNG PRODUCTION

270 mt
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
248 mt

8.9%
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 2014 2015
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. 80

Whilst the current low LNG price and near-term uncertainties will make the 60
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: 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 Japan South Korea 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 OECD Asia Oceania

500 OECD Europe
Non-OECD Asia
400 China
Latin America
300 OECD Americas
Middle East
200 Africa
FSU/non-OECD Europe
100

Source:
International Energy
LNG Pipeline LNG Pipeline Agency (IEA)

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RISE OF THE FSRU AND THE LNG MARKET OUTLOOK 2016

Beyond 2020, the growth in LNG demand will shift to new emerging markets: 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
LNG DEMAND BY COUNTRY FOR RECENT AND LIKELY 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:
MARKET ENTRANTS

2015 TOTAL GLOBAL LNG REGASIFICATION CAPACITY

171 billion cubic feet per day

120
2020
8.0%
120 100 8.0%
6.4%
5.3%
4.7%
2025 4.5%
80 3.3%
83
2.8%
60 1.5%
0.8%
2030
1 Egypt (Zohr) and Argentina (Unconventional
34 gas), both of which currently import LNG but are 40
not forecast to do so in 2030 due to recovering
domestic production

20
Recent Market Entrants Likely Emerging Markets
Indonesia Kuwait Chile Bangladesh Bahrain
Singapore Puerto Rico Thailand Vietnam Ghana 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Pakistan Dominican Malaysia Philippines Morocco
Egypt Republic Poland Cuba South Africa Floating regastification share Floating regastification Onshore regastification
Jordan Argentina Uruguay El Salvador of total
UAE Mexico
Source: Floating LNG Regasification is used to meet rising natural gas demand in smaller markets,
Source: New LNG markets key to growth, Energy Insights 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:

FRANCE CHINA
Dunkirk
10.0 mtpa Yuedong/Jieyang
2.0 mtpa
Beihai
3.0 mtpa
Dalian Expansion
3.0 mtpa
Guangdong Dapeng
2.3 mtpa
Expansion
Diefu
4.0 mtpa

COLOMBIA GHANA
Cartagena*
3.0 mtpa
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.

USA CANADA
Sabine Pass Train 6
4.5 mtpa Pacific North West
12.0 mtpa
Corpus Christi Train 3
4.5 mtpa Woodfibre
2.1 mtpa
Magnolia Trains 1 to 4 8.0 mtpa
LNG Canada
12.0 mtpa
Jordan Cove
6.0 mtpa Douglas Channel
0.6 mtpa
Elba Island
2.5 mtpa LNG
Lake Charles
15.0 mtpa Goldboro LNG
5.0 mtpa

EQUATORIAL GUINEA MOZAMBIQUE INDONESIA

Fortuna LNG
2.0 mtpa Coral FLNG
2.5 mtpa Tangguh Train 3
3.8 mtpa
Mozambique LNG
12.0 mtpa

Source: Gas Strategies

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RISE OF THE FSRU AND THE LNG MARKET OUTLOOK 2016

THE ESSENTIAL STEPS

TO FSRU PROJECT SUCCESS:
INTERVIEW WITH STEPHEN THOMPSON LNG
AND NATURAL GAS PROJECTS AT POTEN & PARTNERS AUSTRALIA
Stephen Thompson is the manager for LNG and natural gas consulting at Poten & Partners Australia.
Since 2010, Poten has done screening, feasibility, development, technical, commercial and finance-related
assignments relating to FSRU projects around the world. With the largest and most experienced team of
LNG and natural gas consultants in the world, Poten is ideally suited to provide a wide range of services
to participants in the natural gas industry.

GIVEN THE CURRENT LOW LNG PRICE, WHAT ARE SEVERAL OF THE CRUCIAL STEPS TO
SUCCESSFULLY EXECUTING A FSRU PROJECT?
Firstly its important to say that the current low LNG price is an opportunity rather than a problem. At present, you can go out and
get your LNG supply under pretty favourable terms, meaning you can lock in the supply part, which is really critical. If you think
about the delivery cost of LNG to market and the cost of regasification, securing your LNG supply chain is the largest and most
important component in regasification. So getting LNG and getting it under favourable terms is a huge advantage at the moment.

On the other hand, constructing the onshore facilities and the FSRU itself is not as challenging. The other crucial steps include,
getting your powerplant built on time (if thats what it is), getting a pipeline in place to get the gas there and getting the
environmental and regulatory approvals in place. Lastly its also important to find a strong sponsor that knows how to handle these
issues and has sufficient financial and government backing to get the job done.

WHAT ARE SOME OF THE ROAD BUMPS THAT CAN DELAY OR DERAIL A PROJECT?
One big road bump has to do with pricing in the domestic market. When prices are subsidised then its not possible to bring in the
LNG at full cost, so finding a way to cover the shortfall is often the make or break of these kind of projects. Other problems can
include getting the approvals, not just for the FSRU, but also for the onshore pipeline and the offshore leg. The devil is in the detail
and there needs to be a lot of analysis around liabilities in terms of getting the project onstream and putting in the installations.
Furthermore, financial guarantees can really delay a project, particularly around these issues.

FSRUs have the advantage of being a floating component which are becoming increasing standardised, meaning you are in a
good position to control costs. The issues can arise however when it comes to the onshore installations because you are not
building them in a shipyard and there is less standardised work, so there is some uncertainty.

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RISE OF THE FSRU AND THE LNG MARKET OUTLOOK 2016
The thing that happens most often is that the sponsor of the FSRU project is in a hurry
and they want to move from the idea of the FSRU through the construction phase
as fast as they possibly can. This impacts the ability to de-risk the fixed marine and
adjacent onshore installations. If you try to curtail the information collection stages
and go right to contracting the work, and you also expect the counterparty to take the
risk of cost of project overruns, you end up with a classic situation where there can be
conflicts in negotiations, delays and possibly unhappy outcomes.
FSRUS HAVE ONLY BEEN AROUND SINCE 2008, HAVE
THERE BEEN ANY LESSONS LEARNED IN PROJECT
EXECUTION SINCE THEN?
The main lesson learned has been the fact that we have moved on from the first
generation LNG carrier conversions to new build large scale vessels. The origins of
the FSRU industry revolved around securing the carriers cheaply and there were real
downsides associated with that approach, including the logistics of getting the cargo
delivered and storage capacity available. So I think a big lesson learned is not just to
consider the cheapest option and instead really think about the project lifecycle costs,
the operability costs and reliability costs associated with your choices.
Another factor that makes FSRU solutions attractive is that they can be constructed
relatively quickly. However if you try to do things too quickly then you may inadvertently
create errors and delays leading to cost escalation. Its for this reason you need to
10
have experts who can make judgements about how fast you can do these things,
especially when it comes to pushing back against strong political pressures.
The nature of the FSRU market industry is that it tends to attract utilities and national
oil companies who are not familiar with the LNG industry. They are earlier along the
learning curve. If you look at the FPSO sector for a comparison, the one big lesson
we can draw is that you must be very, very careful before you try to innovate and step
out from tested technology solutions. The more you step out, the greater risk of cost
overruns.
I think there is an inevitable learning curve for a large number of FSRU project
sponsors, because in the past they simply have not worked with LNG. Previously,
power will have been generated by domestic gas or imported by pipeline, which has
proven successful, but now as these players move to the LNG space, their experience,
processes and business models that they were previously used to are not necessarily
appropriate for
LNG ventures.
The bottom line is that national energy companies need to be mindful of the potential
FSRU project pitfalls we have seen already. However judging by the rapid growth of
the FSRU market, we expect the occurrence of these kinds of issues to increase rather
than decrease, especially as FSRUs are adopted by countries that do not have an
existing domestic gas industry.
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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 FSRU UNITS IN
fleet has grown quickly in size. By 2011 there were seven units installed and this doubled to fourteen units by 2014. Energy Maritime YEAR
OPERATION
Associates forecasts the fleet could grow by an additional 45 units per year through to at least 2020.
2008 2
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. 2009 4

NEWBUILT VS CONVERSION 2010 5

Five of the first six FSRUs were based on converted LNG tankers. However, since 2010, all FSRU orders have been purpose-built units. 2011 7
Five of these units were initially built as LNG regas vessels and are now used as permanent FSRUs.
2012 7
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, 2013 9
with at least ten 1970s and 1980s-built vessels laid-up with potential plans for conversion to LNG FSOs or FSRUs. 2014 14
In addition, conversion shipyards in Asia, particularly in China and Singapore have capacity for FSRU conversion projects. At the same 2015 18
time, the Korean shipyards that constructed all the new FSRU units are struggling financially.
2016 22
THE END OF SPECULATIVE ORDERS?
2017 27
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 2018 35
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. 2020 40

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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 FSRU orders will be divided between newbuilds, conversions, redeployment of LNG
have units on order. Golar leads the way with eight units, closely followed by Excelerate REGAS VESSELS,
and Hoegh with seven units each. Excellerate has moved its LNG regas vessels into the and regas barges with LNG FSOs.
FSRU market, while Golar and Hoegh have expanded rapidly by ordering the majority Energy Maritime Associates is tracking 40 projects that could require an FSRU and/or
of their FSRUs on speculation. BW Gas and Exmar followed this example and placed LNG FSO. In the next five years Energy Maritime Associates forecasts:
speculative orders in 2013 and 2014.
46 orders for newbuilt FSRUs (most will be 170,000m3)
New players are also entering the FSRU market, including LNG ship-owners, such as 46 contracts using existing LNG regas vessels or redeployed FSRUs
MOL and Gaslog, as well as FPSO contractors like Bumi Armada. 57 orders for regas barges with LNG FSOs
26 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 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 here for planned projects

FSRU Units in Operation

- Historical & Forecast

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RISE OF THE FSRU AND THE LNG MARKET OUTLOOK 2016

DO AG
W EN
N D
LO A
AD
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
Stephen Thompson Parth Jindal
Manager LNG and Natural Gas, Managing Director,
Poten & Partners Australia Hegh LNG

Bara Frontasia Karthik Sathyamoorthy

Operation and Commercial Director, President,
Nusantara Regas Galway Group

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