- The Writer holds an MSc in Eurasian Political Economy & Energy from King’s College London and also an MA in European Studies from Sabancı University.
Liquefied Natural Gas (LNG) facilities have traditionally been built onshore; nevertheless, an increase in the cost of construction, as well as the reluctance towards committing to long-term agreements, paved the way for the rapid rise in Floating Storage and Regasification Units (FSRU’s) in recent years. FSRUs best suit the interest of countries that have stagnant or declining gas production or countries that are seeking extra gas supplies over the short term and which have limited capital expenditure. FSRUs also offer temporary solutions for countries that opt for future onshore regasification facilities.
FSRU vessels, also known as floating Liquefied Natural Gas import terminals, essentially benefit from the same technology as onshore terminals. These vessels are capable of transporting, storing as well as regasifying LNG to deliver super chilled gas to either offshore terminals or to onshore receiving terminals.
Historically, the very first FSRU project started when El Paso contracted Excelerate Energy back in 2001 in the Gulf Gateway project. Ever since its inception, the flexibility that FSRU vessels offer in LNG transportation has been seen as successful.
For the last 16 years, the number of FSRU vessels has increased to 26, of which 23 operate as terminals and the remaining three are utilized as tankers. Among these 23 vessels, both their storage capacities as well as daily consumption volumes range from 125,000 and 170,000 m3 and from 240 to 750 million standard cubic feet per day, respectively. Currently, ten FSRU vessels are under construction.
Due to fierce competition among companies involved in FSRU construction, namely; Hyundai, Samsung and Daewoo Shipbuilding & Marine Engineering Co. (DSME), overall costs for newly built FSRU vessels are dropping. However, these vessels are limited to a capacity of 170,000 m3 and with flow rates of 6 million tons per annum (MTPA). On average, the cost of such vessels ranges between $240 million and $280 million. On the other hand, when existing LNG tankers are converted into FSRU vessels, the cost would approximately amount to between $80 million and $100 million in addition to the cost of purchasing the LNG tanker.
Of the two options available in FSRU vessels – build from scratch or conversion from LNG tankers, an existing LNG tanker can be converted into an FSRU vessel within 12 to 18 months, but a newly constructed FSRU vessel would take around 24 to 36 months for completion. In addition, a typical onshore LNG terminal would take five years to be fully operational.
One of the leading global consultancy and research groups, Wood Mackenzie, estimates that for the last two years the volume of imported gas from FSRUs has doubled, reaching 15 percent of global LNG consumption in 2016, with expectations of further rises in the future. The International Gas Union’s recent annual report states that by 2025, approximately another 50 FSRU vessels could be in operation, reaching a volume of almost 60 percent of 2016’s LNG consumption worldwide. From January 2017, global FSRU capacity has reached 83 MTPA. This dramatic increase in volume offers great opportunities for the natural gas industry to expand its market share around the globe in the coming years.
Due to its lower CAPEX, the cost of a new FSRU vessel can typically cost 50 to 60 percent of an onshore terminal.
Given the number of new FSRU vessels ordered in recent years, which have created new pathways to LNG markets, the market future for FSRU’s looks promising. In comparison with onshore terminals, the benefit that FSRU’s brings are many with its low cost, fast track construction and flexible transportation, and therefore, FSRU’s are likely to become key to opening up new markets to LNG in the coming years.
FSRUs have their own advantages as well as challenges for newcomers. FSRUs require lower capital to build, and consequently greatly reduce the cost of an LNG project. FSRUs short delivery time also improves cash flows. Due to the flexibility it offers, FSRUs can be relocated to curb seasonal demand. Additionally, many of the FSRU building companies can provide complete power generation facilities that can directly be connected to the national grid.
On the other hand, both storage capacities, as well as outflow capacity for FSRUs, are still limited to a maximum capacity of 170,000m3. However, a larger storage and outflow capacity would be vital in an environment where investments are volatile and political instability endangers energy supply security. Furthermore, since FSRUs are located in open waters, weather conditions have a great impact on operations in connecting to gas pipelines. While it is possible to expand onshore LNG terminals, both for regasification and storage, this option is not currently available for FSRUs.
Since 2005, countries such as Argentina, China, Israel, Kuwait, Lithuania, the U.A.E. and Indonesia joined the FSRU club. Recently, Pakistan, Egypt, Jordan, Uruguay and Turkey have become new entrants to the club. By the end of this year, Russia, Ghana and Colombia will be joining the list of countries that have FSRUs with a total capacity of 19.3 MTPA. Uruguay, Bangladesh and Philippines are set to join the ranks of countries with new FSRUs in 2018, all of which will become new LNG importers.
The reasons for choosing FSRUs vary from country to country. For instance, although Egypt has its own domestic production to meet its growing domestic demand, Egypt has suspended its gas exports to Jordan and opted for FSRUs to curb its domestic demand. Following the suspension of gas exports from Egypt, with the aim of meeting its gas demand in a short period of time, Jordan secured an FSRU vessel, which came online in May 2015.
Given soaring LNG demand and the growing impetus for LNG trade as well as the advantages it provides with its fast delivery while offering short-term contracts, the future of FSRUs looks encouraging. However, due to the limited storage and regasification capacity, its sensitivities to weather conditions and the difficulty of expansion, this option still has barriers in becoming truly global and therefore, it is likely that FSRUs will remain a niche market in the coming years.
- Opinions expressed in this piece are the author’s own and do not necessarily reflect Anadolu Agency's editorial policy.