Float On - Europe Seeks FSRUs to Boost LNG Import Capacity, and Fast

Monday, 07/04/2022 Published by: Lindsay Schneider rbnenergy.com

Europe’s push to reduce and eventually eliminate its reliance on Russia for natural gas has pushed LNG imports back into the forefront of Europe’s long-term energy plan. This year, with European natural gas prices trading above Asian prices, the continent has been able to attract an incredible amount of LNG, with imports at record levels this winter and sitting just shy of those records this spring. That helped mitigate some of the risks to energy reliability from Russian aggression, at least until the Freeport LNG outage and the latest Russian gas curtailments, but import capacity in Europe was maxed out last winter and more LNG imports can’t happen in the long term without more import capacity. Most of the LNG terminals in Europe are operating at full capacity or don’t have enough market access on the other side of the pipe to take more. While plans to build new import terminals are underway, those take time, and lots of it, so Europe is also pursuing a more immediate option, floating storage and regasification units (FSRUs) — basically, an LNG import terminal on a ship. In today’s RBN blog, we take a look at all things FSRU, from what and where they are to the recent deals with European offtakers.

FSRUs are large vessels that can be moored or anchored offshore, quayside or near-shore, generally close to a market access point. Some are installed as permanent fixtures, while some are moored on a short- or medium-term basis, even seasonally in a few cases. FSRUs are inherently flexible and can move from one market to another when needed, and when not used for regasification, many of them act as LNG tankers, transporting cargoes. For those being used for regasification, an LNG tanker docks alongside the FSRU and offloads its cargo using unloading arms or cryogenic hoses. The LNG is then stored in tanks on the FSRU and vaporized into pipeline-grade natural gas as needed, using the same technology as a traditional import terminal. The gas is offloaded via a subsea buoy or offloading arm with existing pipeline infrastructure as the end destination. Connecting to existing infrastructure does require some setup off or onshore, but while a traditional LNG import terminal can take two to three years to build, the connections needed to receive gas from an FSRU take just months. Given that lead time, it’s easy to see why this is an attractive option for European utilities right now, a subject we touched on recently in Lublin on the Edge. Both FSRUs and traditional LNG import terminals require permitting, and that adds additional time to the startup, but European governments are interested in securing more LNG right now and seem willing to fast-track projects.

FSRUs can also offload LNG, sometimes to smaller vessels to get LNG into difficult-to-navigate ports that larger ships can’t pass through, or to refuel LNG-powered ships. In some cases in Asia, FSRUs have been paired with floating power generation plants and serve those directly. FSRUs come in different sizes, but storage capacity ranges from 126,000 cubic meters (cm) to 173,400 cm. For reference, the U.S. export terminal Corpus Christi LNG has three 160,000 cm storage tanks. Gas sendout varies from around 200 million standard cubic feet per day (MMscf/d) to 1,000 MMscf/d.

There are 47 FSRUs in operation, with 34 currently moored or anchored (anchors, Figure 1), 13 not currently contracted as an FSRU or operating as an LNG tanker (ships, Figure 1), and two currently operating as an FSRU but contracted to Europe (ships with anchor, Figure 1), according to ship-tracking data. Nearly 70% of the existing FSRU fleet is controlled by four companies. Texas-based Excelerate Energy (orange) and Norway’s Höegh (yellow) each own 10 FSRUs, New Fortress Energy (green) owns seven, and energy shipping giant BW (purple) owns five. Excelerate Energy is credited with developing the concept. When it built the first offshore LNG import terminal in the U.S. Gulf of Mexico in 2005, it was the first time LNG was regasified offshore. The Gulf Gateway Deepwater Port was decommissioned in 2012 and equipment from the terminal has been used in Excelerate’s fleet of FSRUs. New Fortress Energy is the newest player in the game. Its August 2021 acquisition of Hygo Energy Transition, a joint venture between Golar LNG Limited and Stonepeak, included seven FSRUs, six LNG tankers and a 50% stake in a floating LNG (FLNG) project. Eleven different companies, each operating one or two FSRUs, hold the remaining 30% of the global fleet. FSRUs can be newbuilds, but LNG tankers can also be converted to FSRUs. New Fortress Energy has two tankers that it is currently considering converting to FSRUs.

As we mentioned earlier, some of these vessels are moored or anchored permanently or for the long-term, contracted to their current location for 15 years or longer. Of those, four are permanent fixtures in Europe, with one each in Italy, Lithuania, Croatia and Turkey. The FSRU in Italy, the LNG Toscana, was the first in Europe. Permitting for the project began in 2009, but it did not begin operations until 2013 and was not fully connected to the Italian gas grid until 2016. KN operates the Höegh-owned Independence, which the company leased for 10 years. The FSRU has been in Lithuania since 2014 and KN said in February that it would purchase the vessel from Höegh at the end of the lease term. The FSRUs in Croatia and Turkey are more recent additions, as both started service in 2021. The LNG Croatia receives most of its cargoes from the U.S. Those three permanent fixtures are the only FSRUs in Europe — FSRUs have historically been used much more heavily in Southeast Asia and Latin America — but that will soon be changing as European utilities and governments have signed several new contracts with FSRUs to bring new LNG to Europe (larger ships, Figure 1).

Gasunie, a utility in the Netherlands, said in March it had chartered the Exmar-owned FSRU S188 for five years, kicking off a flurry of announcements of new FSRU contracts and planned capacity additions. Gasunie announced a second deal in May with New Fortress Energy. The vessel was not specified in the announcement, but based on ship characteristics mentioned, it’s likely the Golar Igloo, one of New Fortress’s largest vessels. Both FSRUs are expected to arrive in the Netherlands in August and be operational sometime this fall.

Germany, the largest gas market in the EU and the one most dependent on Russian supplies, is looking to use FSRUs as part of its solution to replace Russian imports, as well as building a conventional land-based import terminal. German utility Uniper in May contracted the two new FSRUs owned by Greece’s Dynagas, the Transgas Force and Transgas Power, both of which were built last year. The length of the deal was not specified but the duo is expected to be operational in early 2023 and according to Uniper can replace 30% of the gas piped in from Russia. Those two FSRUs will be joined by another two, as a different German utility, RWE, signed a binding 10-year agreement with Höegh LNG for two of its FSRUs. Germany is reportedly considering re-purposing part of the completed, but never started, Nord Stream 2 pipeline as part of the infrastructure to connect the FSRUs to the German pipeline grid, but there may be some legal obstacles to using the Russian-owned pipe.

Finland and Estonia together have signed a 10-year agreement with Excelerate, leasing the Exemplar FSRU to supply both countries. The Exemplar is moored in Argentina and will stay there for the remainder of South America’s winter season before heading to the region. The vessel will ultimately be located in Finland, which is building port structures, but if the port is not ready in time the vessel will head to an existing Estonian port until its final mooring spot is ready. Excelerate is also working with Albania and its gas utility Abgaz on multiple energy infrastructure projects, including a gas pipeline, an LNG terminal and LNG-to-power solutions. As part of that larger project the company will be moving the FSRU Excelsior to the port of Vlora in Albania. The vessel is currently under contract in Israel through the end of this year, then will need to dry dock for some modifications before heading to Albania. The exact terms of the contract were not disclosed, but the FSRU will be in Albania for the long-term.

Some countries are eyeing more permanent FSRU solutions. Greece is opting to build its own FSRUs and one project has already reached a positive final investment decision (FID), with three more under development and progressing rapidly. Greek utility Gastrade reached FID on the Alexandroupolis LNG FSRU, which will be converted from an existing Gaslog LNG tanker. Gaslog will operate the FSRU, which is expected online by the end of 2023. The company also has a project in Thrace under development. Two other projects under development are MedGas’s Argo LNG, which received regulatory authorization back in March, and a Dioriga Gas project under development in the Gulf of Corinth. Greece, which also has a conventional import terminal, is ideally situated to receive additional LNG as it is connected to several other countries via pipeline, creating robust market access.

Like Greece, Italy has also opted for a permanent FSRU solution. Italian energy firm Snam has purchased Golar LNG’s last remaining FSRU (the others were part of the acquisition by New Fortress mentioned earlier), the Golar Tundra, which is expected to start operations in spring 2023, subject to regulatory approvals. While Snam finalizes its implementation of the ship, Golar LNG will continue to operate the vessel as an LNG tanker.

Looking at the targeted operational dates on these announcements, it’s easy to see why FSRUs make such an attractive option for Europe given where things stand with Russia, as even the new FSRUs can be online by the end of next year. Europe will potentially have more than 6 Bcf/d of additional gas import capacity from FSRUs by the end of next year, and some of that will come online ahead of this winter, further bolstering European gas supplies and helping the pivot away from Russian imports. Some of these deals represent fast, long-term solutions, but others are targeting a short- or medium-term way to boost LNG intake, with the option to pivot away again later. That is an attractive option, because while LNG represents a large part of Europe’s strategy to move away from Russian gas, Europe still has a strong focus on climate-change mitigation, and it’s not clear how those two things will interplay in the long run. Those five- and 10-year contracts provide the gas reliability needed now while also setting up an out down the road if the landscape changes.