Buy Me a Boat - Will the Gulf Coast Soon Be Home to Floating LNG Export Capacity?

Monday, 11/21/2022 Published by: Lindsay Schneider rbnenergy.com

The need for more LNG export capacity, driven both by Europe’s push to wean itself off Russian gas and long-term Asian demand growth, is resulting in a new wave of development. Two major U.S. projects have reached a positive final investment decision (FID) in the past six months and more are likely to do so soon, both in the U.S. and elsewhere. But conventional export terminals take time to build, leading at least some, like New Fortress Energy, to explore the potential for floating LNG (FLNG) facilities — basically, an LNG export terminal located on the topside of a large tanker — which can bring new capacity online faster, much like the floating storage and regasification units (FSRUs) that are now boosting European import capacity. In today’s RBN blog, we take a look at FLNGs, what’s already out there, and what could be coming to North America in the next few years.

An FLNG terminal has everything that a conventional terminal has, from feedgas intake to liquefaction equipment to storage, housed right on the vessel. To date, FLNGs have only been used with offshore production as a feedgas source, docking near the gas source and tying into new or existing subsea infrastructure. In many ways, the current interest in floating export terminals — including FLNGs docked at onshore locations, not out at sea — would seem to be a natural extension of the interest in FSRUs (see Float On for a review of FSRUs). So far, though, there are just five FLNGs in operation (again, all of them at offshore production sites), compared to about 50 FSRUs currently in operation and more coming.

The five FLNG vessels in operation are:

• Shell’s Prelude LNG  — the largest of the FLNG vessels already up and running, with a capacity of 3.6 million tons per annum (MMtpa; about 480 MMcf/d). It is located off the coast of Australia (blue-outlined ship in Figure 1).
• Petronas’s PFLNG Satu and PFLNG Dua, which have a combined capacity of 2.7 MMtpa (~360 MMcf/d) and are both anchored off Malaysia (pink ships).
• Golar LNG’s Hilli Episeyo, located off Cameroon (red ship). It has an export capacity of 2.4 MMtpa (~320 MMcf/d) but currently operates around 1.4 MMtpa (~185 MMcf/d) while drilling infrastructure in the area is being scaled up.
• ENI’s brand-new Coral-SUL FLNG, which is anchored off Mozambique (yellow ship) and exported its first LNG cargo earlier this month. The Coral-SUL has a capacity of 3.4 MMtpa (~450 MMcf/d).

Beyond these five, ENI’s Tango FLNG, a 0.6-MMtpa (~80 MMcf/d) terminal that previously operated in Argentina, is being moved to the Republic of Congo (green square). First LNG from the new location is expected next year as part of the Marine XII project. BP also has a project in Africa under construction, the Greater Tortue Ahmeyim FLNG project, located offshore at the border of Senegal and Mauritania (purple square), which is due online in 2023 after some construction delays. [While FSRUs have primarily seen smooth startups, FLNG vessels have often faced a bumpy road (see New Dawn Fades for more).] Reliability has also been a concern for the existing FLNGs. The unplanned downtime is much higher compared to land-based terminals as it’s harder to complete repairs and maintenance in such tight quarters.

As we said, FLNGs so far have been primarily used to target offshore gas reserves that were previously untapped because of their remote location and lack of connectivity to a robust gas market or existing infrastructure. But now, New Fortress Energy (NFE) hopes to bring FLNGs to the Gulf Coast, both in the U.S. and Mexico, and to utilize existing infrastructure to supply feedgas to new projects. NFE, which currently owns and operates seven FSRUs as well as other LNG-to-power vessels, has been looking to add to the supply side of its portfolio, both by securing LNG offtake capacity from conventional land terminals and through the development of an FLNG fleet — an approach it calls “fast LNG.” The company has five FLNG units under construction or scheduled to be completed in the next two years and has three FLNG sites under development to utilize those five. Since NFE is itself an end user of LNG, it could utilize the LNG it produces to serve its own demand, making it a fully integrated LNG operation; alternatively, it could market the LNG to customers — or some combination of the two.

The traditional sales model for U.S. LNG that RBN uses to evaluate how close a project is to moving forward likely doesn’t apply to NFE, but for each of the projects under development we are monitoring progress made. The project furthest along is in Altamira in Mexico’s Tamaulipas state (blue ships in Figure 2; about 300 miles due south of Brownsville, TX). NFE has signed agreements with Mexico’s state-owned Comisión Federal de Electricidad (CFE) to create an LNG hub as part of a larger agreement that also involves power generation in the area. CFE will provide feedgas to the FLNG unit via the existing Sur de Texas-Tuxpan pipeline (purple line) and will share in a portion of the production and marketing of the LNG. Sur de Texas-Tuxpan is an undersea pipeline that transports gas from the Texas-Mexico border to Veracruz. With U.S. feedgas (mostly from the Eagle Ford and Permian) in the mix, the project will also require a U.S. Department of Energy (DOE) export license in addition to Mexican permits. NFE plans to bring one of its under-construction FLNG units to the site once it is completed, which is expected in March 2023. (A second unit will eventually be added to Altamira, but the exact timing has not been specified.)

The FLNG unit slated for Altamira, along with another, is being built at Kiewit Offshore Services’ shipyard near Corpus Christi, TX. Kiewit is building a third FLNG for NFE in Mexico and two others are being built for the company by Sembcorp. Each unit has a planned export capacity of 1.4 MMtpa (~185 MMcf/d).

NFE has a second project proposed offshore of Mexico, this one calling for a more traditional use of FLNG — namely, being anchored over an offshore gas field in the Lakach area of the Gulf of Mexico, off Veracruz (green ship). NFE is in discussions with Mexico’s state-owned Petróleos Mexicanos (Pemex) about the development of the project, which could involve seven wells supplying one 1.4-MMtpa (~185 MMcf/d) FLNG unit with feedgas, with the remaining gas to be piped to Mexico.

Finally, NFE has also proposed to bring two 1.4-MMtpa (~185 MMcf/d) FLNG units to just off the Louisiana coast (orange ships), utilizing the existing underwater Kinetica Pipeline for feedgas (green line). The project in March filed for regulatory approval with the U.S. Maritime Administration (MARAD), which regulates offshore projects. The application was accepted in April, kicking off what was supposed to be a 356-day review timeline, but the review was paused in August while NFE submitted additional information. NFE had the “stop clock” lifted at the end of October and is now awaiting its Draft Environmental Impact Statement (DEIS). The stop clock pushed the regulatory timeframe back by about three months but NFE still hopes to receive approvals and deploy at least the first FLNG unit next year.

NFE’s Louisiana project is only the second U.S. LNG project to go through the MARAD review process. The first was Delfin LNG (purple ship), which filed in 2015 and was approved about 21 months after its application was deemed complete. Delfin is approved for up to 13 MMtpa (~1.73 Bcf/d) of export capacity and up to four FLNG vessels; it also has its needed DOE export licenses. The project stalled out during the COVID-induced economic downturn in 2020 but has been revived, with Delfin now targeting a single-vessel, 3.5-MMtpa (~460 MMcf/d) export project. Delfin purchased the UTOS offshore pipeline (blue line), which runs from onshore Louisiana to an interconnect with the High Island Offshore Pipeline (HIOS, yellow line), for feedgas use. The vessel would be connected to the HIOS pipeline, which is owned by Genesis Midstream.

Delfin also owns the Grand Chenier Offshore pipeline (red line), which can also be used to supply additional feedgas to Delfin LNG. Delfin has a binding sales purchase agreement (SPA) with Vitol for 0.5 MMtpa (~67 MMcf/d) and two non-binding offtake agreements for 1 MMtpa (~133 MMcf/d) each, one with Centrica and another with U.S. gas producer Devon Energy, which will also supply some feedgas to the terminal. If the two non-binding deals can be converted to SPAs the project will have enough sales to move forward on a first vessel. Delfin has said it expects to take FID on the first vessel in the coming months, but unlike NFE, where speed is the primary objective, Delfin has said it expects the facility to be operational within four years of FID. That’s not really any faster than a land-based terminal. In comparison, Corpus Christi Stage III, which took FID this summer, is expected to begin producing LNG in late 2025.

If NFE does move forward with its projects, it could move quickly, because it’s already building the ships. For right now, the project in Altamira seems likely to go ahead, given the agreements with CFE, although that is still subject to some regulatory approvals. But more FLNG could be coming, and NFE’s billionaire CEO, Wes Edens, is putting his money where his mouth is and building these FLNG units, making them much more likely to be used than hypothetical ships that have yet to be built. And unlike with a land-based project, if a particular location doesn’t work out or get the needed approvals, you can take that same vessel and try again somewhere else.