Offshore gas floating units: a rising market

Can Europe float its way to energy security? In our June podcast, we explore the FSRU and FLNG market, and the alternatives for their deployment. We’re joined by Jason Feer, Global Head of Business Intelligence at Poten & Partners, and Jose Esteve, Offshore Gas & Power Global Market Leader at Bureau Veritas.

What is the current state of the FSRU market?

Jose: Promising. We have seen increasing demand for floating storage and regasification units (FSRU). There are around 60 FSRUs on the market today, and 200 LNG import, storage and regasification projects planned. Of these 200 projects, 84 will be floating units.  

Jason: This uptick in FSRUs is a response to fairly low development costs at a time when Europe needs to quickly add import capacity. Still, investors and importers are wary of backing expensive LNG infrastructure. This is due to a risk that it will become obsolete in the face of decarbonization objectives.

What FSRU development options are available?

Jason: Most FSRUs are built only after charter agreements are put in place. Many stakeholders prefer this option, because it guarantees long-term contracts. Otherwise, older vessels can be retrofitted for specific sites, or new FSRUs can be commissioned.

Jose: Newbuilds are a natural choice for long-term deployment, enabling owners to determine LNG capacity. However there are a limited number of shipyards with the availability and LNG containment system expertise to build new FSRUs. Converted units allow faster deployment and are interesting in transition periods, however they tend to come with higher OPEX and less efficiency than newbuilds.

How is the FLNG market looking?

Jose: There is an increased interest in FLNGs and they represent close to a quarter of the 120 expected new liquefaction projects. Currently, according to the International Group of Liquefied Natural Gas Importers (GIIGNL), the total LNG liquefaction capacity worldwide is 462 MTPA distributed over 43 sites, representing 81 terminals. There are currently seven FLNGs, although not all are operating.

Why are there fewer FLNG projects than FSRUs?

Jason: While FLNGs are a clever solution to pressing energy needs, the required investment is still high, especially for newbuilds. Securing financing can be difficult, as lenders expect to see committed offtakers before providing loans. As for conversions, there are limited numbers of suitable vessels currently available.

Jose: That said, two of the current FLNGs are conversions from LNG carriers. Other innovative options are being considered, like using jack-up rigs for conversion into an FLNG, which would definitely be an industry first!

What about the regulatory framework?

Jose: There are regulations for both FSRU and FLNG which classification societies like Bureau Veritas know very well. Additionally, we have dedicated guidelines for the conversion of such units to support project developers. It should be highlighted that currently Flags do not require the same application of international codes for permanently moored floating gas units as they do for trading ships. This favors the business case for converting existing LNG carriers.