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Floating LNG Production Nothing worthwhile is easy…. 7 th ANNUAL DOHA GAS CONFERENCE MARCH 9-11, 2009. Poten & Partners: Consultants to the Global Gas & LNG Industries. Over 60 years as an advisor and broker to the energy and ocean transportation industries

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floating lng production nothing worthwhile is easy

Floating LNG ProductionNothing worthwhile is easy…

7th ANNUAL DOHA GAS CONFERENCE

MARCH 9-11, 2009

poten partners consultants to the global gas lng industries
Poten & Partners: Consultants to the Global Gas & LNG Industries
  • Over 60 years as an advisor and broker to the energy and ocean transportation industries
  • Providing strategic advisory services along the entire natural gas and LNG value chain
  • More than 35 LNG professionals in New York, Houston, London and Perth
flng view should balance concept s pros and cons
FLNG view should balance concept’s pros and cons
  • Unprecedented level of interest in floating liquefaction
    • Diminishing gas supply, rising LNG prices spur development
  • Yet technical, commercial and legal obstacles remain
    • The first firm project commitment remains elusive

Should Floating LNG’s backers be concerned?

  • FLNG on typical emerging technology development path
  • Obstacles can be overcome – tolerance for uncertainty advisable
flng opening more gas to development
FLNG opening more gas to development
  • Accesses gas unsuitable for baseload development
  • Eliminates pipeline & loading infrastructure costs
  • Reduces security and political risks
  • Constructed in controlled

shipyard environment

  • Can relocate facility

upon field depletion

Data: Infield

two distinct development paths emerging
Two distinct development paths emerging

Shell 5-6 mtpa concept

SBM Offshore 2.5 mtpa

yet despite activity a first fid remains elusive
Yet despite activity, a first FID remains elusive
  • Small-scale:
    • Flex LNG – Progress LNG FID delayed in Jan’09
    • SBM Offshore – expecting to start client FEED in ‘09
    • Höegh LNG – completing generic FEED-level design
    • Other concepts in earlier stages of development
      • Excelerate/Exmar, BW Offshore, Teekay, Bluewater, Sevan…
  • Large-scale:
    • Shell – bids and possible award later in ’09
      • Candidate locations: Prelude, Greater Sunrise
    • Inpex – Abadi LNG startup planned for 2016
marine settings present technical challenges
Marine settings present technical challenges
  • Waves, wind and currents
    • Process equipment performance
    • LNG storage “sloshing”
    • Open-water LNG transfers
  • Pretreatment requires up to 50% of available deck area
    • Favors feed gas with low levels of inerts and impurities
    • Condensates and LPGs increase processing, storage and offloading demands

Flex LNG Producer - IHI SPB Containment System

Source: Flex LNG

Höegh FLNG Concept – Side-by-side Loading

Source: Höegh LNG

liquefaction choices far from mature

Black & Veatch PRICO SMR Process

Mustang NDX-1 Process (patent pending)

Source: Mustang Engineering

Liquefaction choices far from mature
  • Need simple, robust and compact liquefaction solutions
    • Single mixed refrigerant cycles
    • Gas expander-based cycles
  • Concerns
    • Process efficiencies
    • Scale-up performance
    • LPG refrigerant storage
    • Marine performance and reliability
economics mired in uncertainty
Economics mired in uncertainty
  • Development costs look competitive, but require further critical analysis
  • Reserves depletion relevant to project’s economic performance
    • No long, slow depletion profiles
    • Additional drilling to sustain field’s production plateau; maintain feed gas pressures
  • FLNG relocation not necessarily easy
    • Balance costly, time-consuming retrofits vs. sub-optimal performance
    • Abandonment timing
commercial structure a challenge for flng developers

1 INTEGRATED PROJECT

2 MERCHANT PROJECT

GSA

3 TOLLING FACILITY

Tolling Agreement

Commercial structure a challenge for FLNG developers
  • FLNG developer can gain broader reward/risk exposure through various “hybrid” structures
  • Ability to take on this broader role depends on
    • Project partners
    • Developer’s industry expertise
    • Developer’s ability to raise financing

Resource Owner

construction risk sharing must be addressed
Construction risk-sharing must be addressed
  • Risk allocation between the shipbuilder, process vendor, and EPC contractor needs definition
  • More construction risks will ultimately rest with project owners or LNG buyers
    • EPC contractors don’t have the balance sheet to bear completion or performance risks for emerging technologies
  • Licensing agreements for jointly developed technologies

Source: Expro

offshore production and loading affect fiscals spas
Offshore production and loading affect fiscals; SPAs
  • Upstream fiscal terms must address LNG exports
  • FLNGs likely to have tighter logistical constraints
    • SPAs focus on scheduling issues

Source: Bluewater

financing will require proof of concept
Financing will require proof of concept
  • FLNG concept not fully proven – greater project execution and operational risks
  • First project will be subject to rigorous review to establish financing precedents
  • Loan tenor aligned with production life
  • Movable asset has some financing merits
  • High level of investment concentrated on a single hull raises insurance issues
legal regulatory landscape can affect design
Legal/regulatory landscape can affect design
  • Marine setting brings FPSO-type legal frameworks into play
    • Which national legislation, flag state regulations, class rules and international conventions apply?
  • FLNG approvals similar to those for LNG vessels
  • Some legal issues can affect design
    • Ship vs. static facility?
    • Is the vessel transporting gas?
  • Fulfilling Domestic Market Obligations
  • Local content requirements
flng s next steps
FLNG’s next steps
  • Small-scale FLNG’s needs
    • Appropriate stranded gas resources
    • Project sponsors
  • Large-scale FLNG remains domain of international oil companies
    • Deep engineering, project development and financial resources
  • Downturn could induce a pause in development
    • Changing economics
    • Evaporating sources of financing
  • On the positive side..
    • Construction costs are falling
    • Shipyards looking to fill order books
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