Floating Storage and Regasification Units Outlook in Global Scenario
Parvez Chughtai
General Manager - Sales
Marine Solutions
Wartsila India

Amid stiff competition from Coal, Wind and Solar and increasing customer requests for more flexible and shorter term LNG/Gas purchase contracts, and the increasing uncertainties surrounding the future of gas demand in a world , it is prudent that the gas industry will need to be innovative if it is to prosper. The development of FSRUs is an example of one such innovation, and I believe that this working paper can provide a fair understanding of this growing industry.

The opening of new and small markets,which do not have access to existing gas infrastructure and are not confident of future demand levels to construct significant onshore LNG Regasification Facility, will be crucial. As a result, the countries with access to the sea, the availability of flexible, floating storage and regasification units will be vital to reduce the early risks of gas market development. Indeed, these FSRUs can even catalyse the movement towards gas-to-power and gas-to-fertilizer projects that are becoming increasingly popular now a days.

In addition to FSRUs there are currently 4 floating storage vessels (FSUs) in operation, one in Malta and 2 in Malaysia. All are converted LNG tankers. There is also a small-scale FSU operating in Bali. A further FSU is currently being constructed for Bahrain LNG.

As per a recent report published by Oxford Institute for Energy studies, The FSRU business started just 16 years ago in 2001 when El Paso contracted with Excelerate Energy to build the first FSRU vessel for the Gulf Gateway project. Today there are 26 FSRU vessels of which 23 are operating as terminals and 3 as LNG tankers. A further 10 are currently in construction with options for another 10 placed with the Korean (9 FSRUs) and Chinese (1 FSRU)shipyards. A recent IGU report estimated that close to 50 FSRUs could be in operation by 2025 with the capacity to import close to 200 mtpa i.e. 60% of the world's LNG production in 2016. This is an incredible growth rate in an industry which is traditionally regarded as conservative and offers great opportunities to sell LNG into new markets.

In addition to FSRUs there are currently 4 floating storage vessels (FSUs) in operation, one in Malta and 2 in Malaysia. All are converted LNG tankers. There is also a small-scale FSU operating in Bali. A further FSU is currently being constructed for Bahrain LNG

This rapid growth has been mainly due to the lower cost, faster schedule, commercial flexibility and reusable asset feature of FSRUs when compared to traditional Onshore LNG Regasification terminals which cannot be relocated and must be regarded as a sunk cost.
Whilst the first FSRUs were based on nominal 130,000 m3 tankers with send out rates of 2-3 mtpa the more recent vessels are larger - typically 173,000 m3 and send out rates up to 6 mtpa. The FSRUs currently in construction offer the same full processing capability as land based terminals including full boil-off gas management facilities using recondensers.

Cost and Time Factor

The cost of a new FSRU can typically represent only 50-60% of an onshore terminal and be delivered in half the time. New builds typically cost $240 -300m and can be constructed in 27-36 months. FSRUs based on LNG tanker conversions cost less at £80-100 Million and the modifications typically take 18 months due to the long delivery times of the equipment not the shipyard conversion.

An onshore 3 mtpa terminal with one 180,000 meter cube storage tankwhich typically takes 36-40 months to construct is likely to cost $700-800Million, depending on local construction labour costs, compared to $400-500m for a similar capacity FSRU. Capital cost (In US$) comparison with ballpark figures tabulated below:



Owner's cost include cost of all specialist contractors and consultants used during the period prior to the Final Investment Decision (FID) e.g. feasibility studies, conceptual design, and environmental impact assessment etc.

Operating costs are generally estimated at 2.5% of CAPEX per year. Assuming a CAPEX of $350m ($275m for FSRU + $75m for the infrastructure) this would estimate the OPEX at $8.75m/y i.e. $24,000/day.

FSRU Owners and Service Providers

The major FSRU owners are often referred to as service providers and are all well-established LNG tanker companies. The leading companies are Golar LNG, Höegh LNG and Excelerate Energy. Recently new companies have entered the market - BW Gas and Mitsui O.S.K. Lines (MOL). Following table explains Esisting FSRU fleets under operation.



Business Models

LNG Import terminal business models normally take the form of Integrated, Merchant or Tolling arrangements. FSRUs are functionally identical to onshore terminals and can use any of these models. The tolling model seems to be the most popular as it provides a simple arrangement directly with the energy company and the leasing option fits well with shorter term contracts.

The integrated model was the original approach used for dedicated onshore terminals. The terminal is owned by the energy company which also owns the source gas, liquefies it, ships it, stores and vaporises it and transports the natural gas to a grid tie-in point or directly to a consumer e.g. power station. The design, construction and installation of the terminal is undertaken by a contractor usually on an EPC basis

The merchant approach is more complicated. The terminal is owned by the party or parties who purchase and take title of the LNG and then sell the regasified LNG (natural gas) to buyers. The owners of the source gas, who typically produce the LNG, are not a party to the terminal model - they just sell the LNG to the 'merchant'. The merchant makes its profit from the difference between the LNG purchase price and the gassales price

During the initial years, FSRUs were typically leased on a 10-15 year basis. This gave the owner some reassurance of recovering the capital cost of the vessel and finance charges over the lease period. Analysis of the early FSRUs would indicate that 10 years was the minimum lease period and the day rate was calculated on the basis of recovering the capital costs and finance costs over 8 years with the remaining 2 years as profit. The range of lease periods now spans 5-20 years and is really driven by the gas market demand period

Conclusion

The FSRU market is set for major growth in the next few years with quite a number of new players "knocking on the door".

With the demand for clean energy growing, resulting in a decline for oil and coal, LNG is moving to fill the gap with the global LNG trade growing by four times in the last 20 years. The move by oil major Shell to buy BG Group underscores this shift.

Floating solutions provide both a cost effective and quick solution to importing LNG versus building an onshore terminal. The general public also often prefer floating solutions versus having a liquefaction plant as their neighbour.

New build FSRUs typically cost $250-300m to construct and a conversion costs £80-100m. Leasing day rates are in the range of US$110,000-160,000/day depending on the capacity and the charter period. This day rate is for the vessel only and operating costs need to be added which are typically $20,000 -45,000/day. These rates typically represent an overall regasification cost of $0.4/mmbtu for a 100% load factor but $0.7/mmbtu is more realistic at a 50% load factor. The 15-year charter rate for the recent Bangladesh FSRU has been stated as $0.47/mmbtu. Fuel costs must be added to these costs which are a function of terminal send-out and are significant. Charter periods for early FSRUs were typically 10-15 years but of late much shorter as the owners are more confident about reassigning the FSRU at the end of the charter period. The recent Egypt FSRU lease is for just 5 years - ideal for short term market needs which could not be economically met by using an onshore terminal.