Global LNG and the Growth of Mid-Markets - A Catalyst for the Early Commercialisation of Floating Liquefaction Technologies
Authors: Verghese Joe Thottungal 
Published: May 2011

Long range energy forecasts suggest that world demand for LNG would double by 2020. While much of this demand will be met by baseload LNG liquefaction plants, this growth trend is also leading to the evolution of new LNG market structures. This is evidenced by the emergence of mid-markets, principally regional markets which rely on smaller parcels of LNG than applicable to baseload plants, and exploit the opportunities offered by spot trades.

While onshore baseload projects (requiring long term Sale and Purchase Agreements) continue to be aggressively pursued, the emergence of mid-markets has generated interest in the monetisation of medium to smaller gas reserves. For offshore gas fields, the deployment of floating liquefaction units (LNG FPSOs) offers an interesting pathway to these emerging mid-markets.

A significant portion of the potentially exploitable gas reserves today is stranded gas. The pressure to bring these stranded reserves (estimated to be in the region of 4000 TCF) to the market is compelling. The LNG FPSO provides an attractive route to connecting smaller and medium size reserves to the emerging mid-markets. However, the initial deployment of LNG FPSOs is not without its challenges.

The paper overviews industry efforts at maturing LNG FPSO technologies to market ready status. It assesses the progress made on technology qualification for LNG liquefaction, LNG/LPG product containment and offloading systems. The need for functionality and reliability of these systems in the metocean environment (benign to severe) in the prospective development provinces has driven a sustained program of technology qualification by the proponents of the technology. The paper reports on the claims of these technology proprietors, and the industry's views of these claims.

The paper critically examines the concept and system critical issues relevant to LNG FPSO deployment, evaluates the principal technology and deployment risks, and explores avenues for the mitigation of these risks.

Concluding the above analysis, the paper assesses the potential of LNG-FPSOs to supply and stimulate the development of the mid-markets, and focuses, by way of example, on a notional opportunity in the Asia Pacific region.

Introduction

The robust forecasts for the growth of LNG over the next decade have generated significant momentum in the intensive planning and development of a number of baseload LNG projects. These baseload projects focus on the exploitation of relatively large gas reserves, typically 5 TCF+. These baseload projects are often underpinned by long term Sale and Purchase Agreements necessary to secure project financing and guarantee the offtake of LNG product. However, LNG markets are now witnessing a structural change, with the emergence of mid-markets i.e. regional markets which typically are an aggregate of relatively small LNG supply parcels delivered from coastal storage terminals, and often distributed by road tankers and vacuum jacketed containers to cities and towns in the hinterland. The emergence of these mid-markets has generated interest in the monetisation of medium to smaller gas reserves.

Gas represents a less carbon intensive fuel than coal or oil with less sulphur dioxides, nitrogen oxides, particulate matter and carbon dioxide emissions. As a result, the energy mix is getting lighter with gas now accounting for 25% of primary energy consumption (Figure 1.0). A significant portion of the potentially exploitable gas reserves today is stranded gas. The pressure to bring these stranded reserves (estimated to be in the region of 4000 TCF) to the market is compelling.