2013 INTERNATIONAL OFFSHORE
& GULF OF MEXICO REPORT
World FLNG Market Forecast
2013-2019
By Murray Dormer, Researcher, Douglas-Westwood
I
ncreasing gas demand, coupled with the
requirement for short- to medium-term
import solutions, has seen the floating
regasification sector experience rapid
growth in recent years. The industry has grown
from the Gulf Gateway unit (2005-2012) to
ten operational vessels in 2012. Similarly, the
floating liquefaction market is gaining traction
with the first base load FLNG liquefaction
terminal due onstream in 2016.
The emergence of floating liquefaction will
drive a significant increase in total global capi-
tal expenditure (capex) over the period to 2019.
While expenditure is expected to increase in the
existing regasification market, the liquefaction
sector is forecast to overshadow this as Capex
associated with a floating liquefaction terminal
is more than triple that of a typical floating
import terminal. Douglas-Westwood (DW) in
its World FLNG Market Forecast 2013-2019
shows that expenditure is set to total $47.4 bil-
lion over the 2013-2019 period with over $28
billion spent on FLNG liquefaction and $19.1
billion on import terminals.
Moreover, economic growth is driving elec-
tricity demand in the developing world and
Asia will be a focus region for both lique-
faction and regasification terminals between
2013-2019, accounting for nearly 35% ($16.3
billion) of global Capex. Australasia will
account for 22% ($10.5 billion) of the mar-
ket, largely due to a number of liquefaction
projects. Latin America will represent 17%
($8 billion) of global FLNG expenditure, with
projects involving both offshore liquefaction
and regasification vessels.
Key Demand Drivers
Five main factors are driving the growth of
the FLNG market:
Monetization of stranded gas reserves
Security of supply
Onshore terminal costs
Environmental
Increasing long-term gas demand.
Increasing long-term demand is driving the
value of gas reserves; however, in some places
a lack of infrastructure makes the monetization
of reserves challenging. This, coupled with
escalating costs of labor and raw materials,
as well as tight contractor markets has led
to large increases in the cost of new onshore
terminals in recent years. This has been evident
in Australia with seven projects exceeding
forecast expenditure, most recently the Gorgon
Project in Barrow Island, Western Australia.
Arguably, FLNG could be a viable option
when considering cost; the modular design of
92 Pipeline & Gas Journal I April 2013 / www.pgjonline.com
FLNG vessels means they can
Africa
be built in lower cost environ- Asia
ments and towed to location. * Austraiasia
Eastern Europe & FSU
Another advantage is that it acts Latin America
as a processing platform as well Middle East
as a liquefaction facility, conse- North America
Western Europe
quently eliminating costly pipe-
line and production facilities.
Also, the interruption of
gas supplies is a major con-
cern relating to the security of
land-based LNG facilities. In
some instances, developing new 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 201S 2019
onshore infrastructure can also Fig. 1: Global Capex on FLNG Facilities by Region, 2013-2019
be difficult due to local opposi- ture is expected to increase from $2.8 billion
tion. Therefore, the use of offshore regasification in the 2008-2012 period to $19.1 billion dur-
facilities, placed in relative proximity to existing ing the following seven years. The lack of
gas markets and connected to shore by pipeline, project visibility beyond 2016 causes a fall in
is one method to mitigate such concerns. FLNG import capex; however, market trends
Gas is often a waste product of oil produc- indicate this sector is expected to continue
tion; however; recent market developments have growing beyond the forecast period.
seen companies actively look at gas export and Capex on liquefaction vessels will see a
production options that avoid gas flaring and/or dramatic rise beyond 2013 as ground-break-
unnecessary re-injection. This is driven further ing projects enter the construction phase.
by the combination of a desire for gas assets Expenditure is expected to rise from $248 mil-
monetization and more stringent legislation. lion in the 2008-2012 period to $28.3 billion
Increasing economic development, coupled between 2013-2019.
with extensive electrification programs, has While there are a number of floating lique-
caused power generation requirements to faction vessels due onstream within the fore-
increase throughout the developing world, cast, DW believes this sector could continue to
particularly Asia. This has in tiim driven a gain traction following start-up and operation
huge interest in floating regasification ves- of projects. Based on this hypothesis, coupled
sels which are considered cost-effective at with increasingly remote, offshore and deep-
medium-sized throughputs (around 3 million water discoveries, the long-term market is
tons per annum (mtpa). expected to continue to grow.
Market Forecast Regional Outlook
Total global capex will increase from $3 Asia, which is a focus area for both float-
billion during 2008-2012 to $47 billion dur- ing liquefaction and regasification vessels,
ing the following seven-year period. Capex is expected to account for over a third (35%,
should peak at $9.7 billion in 2017; this will be $16.3 billion) of the forecast. Economic
attributed to a large proportion of prospective growth and development is driving energy
projects coming onstream. Market trends sug- demand in the region; therefore, FLNG pro-
gest that FLNG market capex could continue vides a short-term solution to rising demand
to rise beyond 2017; however, the operational and energy shortages. The region is looking at
successes of floating liquefaction projects will onshore options in the long term.
be central to market growth. Australasia accounts for the second-largest
proportion of global capex 22% ($10.6 billion),
The Market By Type largely due a number of liquefaction projects.
Historically the global FLNG market has The Prelude and PNG FLNG projects are due
only consisted of import vessels; however, onstream in 2017, representing all capex dur-
this is expected to change in the next three/ ing 2009-2017. Prelude will represent 65% of
four years with Petronas' and Shell's floating liquefaction capex. Successful operation of the
liquefaction projects coming onstream. These Prelude facility could lead to increased global
pioneering projects are likely to instill confi- interest in floating liquefaction.
dence in the market, thus leading to a number Latin America will be the third-largest
of concepts entering the development stage. contributor to global capex (17%), investing
Floating regasification terminal expendi- $8 billion, driven by both floating import and

export facilities. The utilization of floating
liquefaction could increase beyond the fore-
cast period with the potential to be used for
deepwater production and processing.
North America will halt the majority of its
import projects following the production of
unconventionals such as shale gas and only
account for 9% ($4.2 billion) of global capex,
with most spent on floating liquefaction. It will
be interesting to see how the U.S. manages the
shift from production of shale gas "sweet spots"
to formations with increased production difficul-
ty; however, this is not a major feature at present.
The Middle East will see an increase in
capex over the forecast period but will only
represent 6% ($3 billion) of global expendi-
ture. The region dominates the LNG export
market through its onshore liquefaction plants
in Qatar and Abu Dhabi. Despite these estab-
lished onshore facilities, abundant reserves of
non-associated and associated gas and security
issues have meant some countries (particularly
Iraq and Israel) have been suggested as poten-
tial locations for FLNG liquefaction vessels.
Western Europe will represent 5% of total
global capex ($2.4 billion). The substantial
growth in expenditure follows a five-year
period without investment in the floating LNG
sector. Declining production in the region
is placing pressure on countries to increase
imports to satisfy energy demand. Floating
regasification provides an important solution
Ecosse Subsea's
Next Generation Pipelay System
E
cosse Subsea System has unveiled
what it considers game-changing
pipelay technology. The subsea firm
says it has developed and patented a
rigid pipelay system which can be deployed
from smaller, more readily available vessels
and which will slash schedules and installation
costs for pipe-laying projects
Traditionally, rigid pipelay projects rely on
pipelay systems which are embedded into ded-
icated and sophisticated vessels, commanding
hefty hire rates in the region of $250,000 plus
per day. These large systems require extensive
deck strengthening on the vessel, and the
systems usually take a minimum of 14 days to
install, normally the major components have
to be designed into the vessel from the outset.
Ecosse Subsea's PREP (Plastic Reeled
Elastic Pipelay) is a modular system designed
2013
due to fast track lead times in this industry.
Africa's spend of $1.5 billion (3%) will be
largely attributed to liquefaction expenditure.
This could increase as floating liquefaction is
considered for significant gas discoveries in
countries such as Mozambique and Tanzania.
Eastern Europe and the FSU will see some
investment over the forecast period; however,
this will be minimal at 3% ($1.4 billion) and
solely related to import projects.
Conclusions
The natural gas business has robust long-
term drivers. Energy demand is growing as a
function of population and economic growth.
The drive to develop gas reserves is coming
from a substitution effect as a result of high oil
prices and a move away from the use of both
coal and nuclear energy.
Unconventional gas will not be a universal
solution to increased global gas demand. With the
possible exception of China, it is dilficult to see
how the rapid U.S. unconventional gas develop-
ment could be replicated elsewhere in the world
within the next 10 years. Supply chain constraints,
uncertainty over long-term production levels and
political issues are the biggest problems.
Vast offshore conventional reserves exist and
continue to be found. Historically, relatively little
offshore natural gas exploration has occurred, the
industry has instead focussed on oil. Many con-
ventional otfshore gas reserves remain untapped
to be used for the laying of reeled rigid pipe
(on a project by project basis) from smaller
vessels and can be installed within 48 hours.
PREP uses many of the same compo-
nents as a conventional pipelay system but
its component assembly avoids the need to be
mounted on a specialized pipelay vessel, while
offering flexibility, mobility and reduced cost,
both in terms of the pipelay system itself and
also associated vessel costs.
The PREP system takes advantage of the
underutilized elastic properties of steel pipe to
be able to lay pipe from smaller vessels and the
huge fleeting tower that is the dominant fea-
ture in conventional systems is not required.
PREP's flexibility addresses a major barrier
to entry into the conventional pipelay market
capital investment in suitable pipelay ves-
sels, spool bases and global infrastructure.
Pipeline & Gas Journal /April 20t3 / www.pgjonline.com
INTERNATIONAL OFFSHORE
& GULF OF MEXICO REPORT
and more continue to be found, particularly in
frontier areas such as East Africa.
The FLNG liquefaction business is in its
infancy. The success or failure of the first
projects will be critical with many operators/
observers taking a keen interest in the buil4
cost and performance. Successil execution
and operation will undoubtedly encourage
further new projects while failure could see the
industry disappear completely.
The lingering European sovereign debt cri-
sis presents two significant risks to the sector.
First, investor caution is already high within
the FLNG sector, primarily concerning float-
ing liquefaction; therefore, the debt crisis
could deter investment and diminish potential
market growth in the short-medium term.
Second, that the crisis will bring further eco-
nomic downturns and depress oil demand and
prices in turn impacting new E&P activity.
For more than 30 years FLNG export has been
an ambition of the offshore industry. It is now well
on the way to reality. Last year was a real mile-
stone for the industry with steel cut on the first
project. The sector is now buoyant with the pros-
pect of over $47 billion to be spent 2013-2019.
For information or to purchase the World
FLNG Market Forecast 2013-2019, contact:
Phone: +44 1227 780999 Email: research
douglaswestwood.com or visit Website: www.
douglaswestwood.com. P&GJ
Eeosse Subsea Systems Managing Director,
Mike Wilson, said, "PREP is an enabling technol-
ogy which will allow market entry for a wider
range of participants, principally the Tier 2 con-
tractors. The real value, however, is for operators
who will have access to an expanded choice of
contractors and control over installation schedules.
"The PREP system is not restricted to spending
a iU pipe-laying season within one geographic
region in order to make any trip financially viable.
It is easily transported, containerized, and can be
deployed to various geographic locations within
the same pipe-laying season, leading to significant
cost savings for operators who would otherwise
have to wait six months or more before their pipe-
laying requirements can be met.
"A back log on the start up of projects is
building up and we expect PREP to attract a
lot of attention." P&GJ
93
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