Baku, Azerbaijan, July 10
By Leman Zeynalova – Trend:
Global Floating Liquefied Natural Gas (FLNG) capacity is expected to more than double in the next three years, Trend reports with reference to Fitch Solutions Macro Research (a unit of Fitch Group).
“We expect global FLNG capacity to more than double in the next three years, with new projects on both coasts of Africa and a second Malaysian export facility all given the greenlight for investment. The main appeal of FLNG projects lies in their combined ability to unlock stranded or technically challenging resource bases, as well as the reduced cost, lead-times and operational risk of larger land based LNG developments. Likewise, in general, the shorter lead-times for FLNG projects appeals to operators who will see a faster monetisation of gas reserves,” reads the report published by Fitch Solutions.
Due to FLNG vessels being constructed at shipyards, the local labour cost and permitting issues associated with the construction of shore terminals can be avoided, said the company.
“Furthermore, capital requirements for FLNG projects are often lower, which means
companies are better able to keep the financing on balance sheet, where necessary. Modular facilities also offer the ability to more rapidly expand production to meet gaps in the market, given generally shorter project lead times,” reads the report.
Fitch Solutions said that importantly, unlike much larger onshore LNG terminals, lower capacity for FLNG developments means it is much less difficult to lock in adequate offtake agreements.
“Increasingly, liquefaction ventures have tied in interests from major buyers. A number of buyers in Asia have been targeting upstream equity investments, which increases the security of their supply, allowing them to lock in resources at a more favourable price and giving them exposure on both s ides of the market, which can help them in negotiating their own purchase agreements. In our opinion, projects with substantial involvement from companies integrated along the supply chain are better positioned to progress,” said the company.
Finally, the Fitch Solutions believes that global LNG market will face a period of heavy oversupply through the next three years, with a plethora of new supply due to enter the market.
“This will weaken the business case for further LNG export capacity. However, the smaller FLNG solutions will be more attractive to investors on a relative basis than more capital intensive onshore projects in the lower-price environment. The lower upfront development costs associated with smaller FLNG solutions means a return on investment is attained over a shorter period, enabling lower buyer risk from shorter contract durations.”
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