Demand for liquified natural gas (LNG) continues to rise and natural gas is on track to overtake oil as the world's primary source of energy by the middle of the next decade. Some of the required infrastructure in the LNG value chain is costly and time-consuming to build, but there are alternative options.
In particular, floating storage and regassification units (FSRU) offer some attractive benefits. This article explores the growing role for FSRUs, details their pros and cons, and outlines common risks during their construction and subsequent operation.
Growing demand for LNG
Throughout Asia and global emerging markets there is an ongoing switch to burn gas instead of coal, diesel, or heavy fuel oil in power stations. The shipping industry, like many others, is under stricter rules to use cleaner fuels and this is also underpinning demand.
The war in Ukraine has highlighted the huge reliance many countries have on natural gas imported from Russia. The conflict has pushed international governments to look for alternative options that offer more flexibility and diversify their energy supplies.
LNG offers a solution to these issues and provides greater flexibility than pipeline gas - the destination for LNG cargoes can be changed to meet evolving supply and demand. The easing of LNG transit restrictions through the Panama Canal (2018) also created more possibilities for shippers.
These factors have all combined to generate the ongoing and sustained increase in demand for LNG that will continue over the coming years.
How FSRUs fit into the LNG value chain
LNG is produced by cooling natural gas to -162°C (-260°F). It is odourless, colourless, non-toxic and non-corrosive. It contains no contaminants and is non-flammable, although its vapours, if mixed at the correct ratio with air, are flammable. Liquification shrinks natural gas by a factor of 600, making shipping it in this form better economic value.
Once extracted from the ground, natural gas, which is destined to become LNG, goes through a liquification plant where it is treated, cooled and stored for transportation. It is then loaded onto specialist LNG carriers and shipped to its destination.
It is then unloaded at a receiving terminal, where it is warmed, converted back to gas (regassification) and pumped into the distribution grid or to a gas-fired power station.
Shore-based receiving terminals take up a lot of land and need a large workforce to maintain operations. This is where FSRUs come in to play. These specially designed vessels fulfil the function of an onshore receiving terminal. They can either act in place of such terminals or complement existing terminals.
FSRUs can either be part of a near-shore of offshore project. In the near-shore project, the gas is offlaoded through pipes along a purpose-built jetty to the gas distribution network. THis is the most common arrangement.
If a jetty is not a viable or desirable solution, then the FSRU is taken further offshore – typically to a distance of between 5km and 20km. It is permanently moored to the seabed and the re-converted gas is then pumped through the FSRU’s turret and a subsea pipeline back to shore where the gas is supplied to the distribution network.
Pros and cons of FSRUs
The main advantages of an FSRU over an onshore receiving terminal are outlined below:
• Lower Cost
o Based on recent
research, we suggest that a new FSRU project could cost up to $400m - $350m for the vessel and $50m for the ship-to-shore infrastructure. This is around 50% cheaper than building an onshore receiving terminal.
• Faster Schedule
o New FSRUs typically take
less than 36 months to construct – an onshore terminal could take at
least 48 months, and maybe much more depending on planning approvals.
o LNG carrier conversions,
where existing LNG carriers are converted into FSRUs, take just 18 months and cost even less.
• Commercial Flexibility
o It is easy to change
location of an FSRU in response to evolving demand and business environments.
o Allows developing
countries to import relatively small volumes of LNG.
In addition, an FSRU is a reusable asset rather than an onshore plant which is considered a lost cost. FSRUs reduce land use requirements and because they can be hired at short notice and deployed almost immediately, they reduce CAPEX costs.
In short, they offer a lower cost option for importing LNG that can be deployed faster and are more flexible than developing onshore receiving terminals.
Construction risks
FSRUs are either purpose-built vessels or LNG carrier conversions. At the time of producing this article, there were only 48 FSRUs in operation, meaning it is a small and specialist construction market. This number has jumped from just two in 2005 and looks set to continue rising.
As a relatively small and specialist construction market there is a premium to be paid for repairs or rework should an issue arise during construction or conversion. There are only a small number of fabrication yards with specialist experience in this sector and commissioning one of them can help de-risk a project.
Storm damage or damage from other vessels entering and exiting the yard are common risks, as are flood or water ingress. As LNG is non-corrosive but cryogenic, material selection for process equipment is based on its properties to withstand cold temperatures, rather than corrosion which makes it susceptible to corrosion issues in the construction environment. Fire risks and the potential for impact damage from dropped objects or moving machinery also need to be mitigated.
None of the risks vary dramatically from established risk profiles in the LNG carrier and marine construction sector and are generally well understood.
Operational risks
Most FSRUs are classified as ships and so risks are managed through the International Maritime Organisation. FSRUs are subject to the requirements of the International Gas Carrier Code. This demands that operators undertake a risk assessment which considers the following hazards:
• Fire and explosion
• Evacuation
• Extension of hazardous areas
• Pressurised gas discharge to
shore
• High-pressure gas venting
• Process upset conditions
• Storage and handling of
flammable refrigerants; continuous presence of liquid and vapour cargo outside the cargo containment system
• Tank over-pressure and
under-pressure
• Ship-to-ship transfer of liquid
cargo
• Collision risk during berthing
manoeuvres
In addition to these requirements, the main classification societies have additional requirements for the regassification plant.
In practice, large losses involving LNG are uncommon. The most recent large loss involving LNG was in Algeria in 2004 when an explosion caused 27 fatalities. The WTW Energy Loss Database contains details of 91 incidents in LNG facilities dating back to 1974. This equates to fewer than two major insured incidents a year, and not all involved LNG itself but the equipment used to handle it.
Conclusion
LNG is an established market with a well understood risk profile and there is increasing demand for gas in its liquified state.
Using FSRUs to replace or complement onshore receiving terminals offers time, cost and flexibility benefits that are attractive and provide workable solutions for developing countries.
The number of FSRUs has grown steadily in the past 15 years and that growth is set to continue. While such projects are a specialist area of the energy market, they are quickly moving closer to the mainstream and will be a central consideration in scores of projects over the coming years.
Mike McMahon
Managing Director
Upstream Energy, Natural Resources
mike.mcmahon@charlestaylor.com
James Buckwell
Director, Natural Resources
james.buckwell@charlestaylor.com
