E xamining the n orth a merican m arket w hat is the p otential for f lng
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E xamining the N orth A merican M arket “ W hat is the P otential for F LNG”. 2014 Houston Marine Insurance Seminar September 23 rd , 2014 Constantyn Gieskes. Disclaimer.

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E xamining the N orth A merican M arket “ W hat is the P otential for F LNG”

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E xamining the n orth a merican m arket w hat is the p otential for f lng

Examining the North American Market “What is the Potential for FLNG”

2014 Houston Marine Insurance Seminar

September 23rd, 2014

Constantyn Gieskes


Disclaimer

Disclaimer

This Presentation has been produced by Braemar Engineering. This presentation is strictly confidential and may not be reproduced or redistributed, in whole or in part, to any other person. To the best of the knowledge of the Company, the information contained in this presentation dated February 2014 (the "Presentation") is in all material respect in accordance with the facts as of the date hereof, and contains no material omissions likely to affect its importance. However, no representation or warranty (express or implied) is made as to, and no reliance should be placed on, any information, including projections, estimates, targets and opinions, contained herein, and no liability whatsoever is accepted as to any errors, omissions or misstatements contained herein. This Presentation is not a prospectus and does not contain the same level of information as a prospectus. None of the Managers, the Company, or any of its parents or subsidiary undertakings or any such person’s officers or employees accepts any liability whatsoever arising directly or indirectly from the use of this Presentation. This Presentation contains information obtained from third parties. Such information has been accurately reproduced and, as far as the Company is aware and able to ascertain from the information published by that third party, no facts have been omitted that would render the reproduced information to be inaccurate or misleading.

This Presentation contains certain forward-looking statements relating to the business, financial performance and results of the Company and/or the industry in which it operates. Forward-looking statements concern future circumstances and results and other statements that are not historical facts, sometimes identified by the words “believes”, expects”, “predicts”, “intends”, “projects”, “plans”, “estimates”, “aims”, “foresees”, “anticipates”, “targets”, and similar expressions. The forward-looking statements contained in this Presentation, including assumptions, opinions and views of the Company or cited from third party sources are solely opinions and forecasts and are subject to risks, uncertainties and other factors that may cause actual events to differ materially from any anticipated development. None of the Company or the Managers or any of its parent or subsidiary undertakings or any such person’s officers or employees provides any assurance that the assumptions underlying such forward-looking statements are free from errors nor does any of them accept any responsibility for the future accuracy of the opinions expressed in this Presentation or the actual occurrence of the forecasted developments. The Company assumes no obligation, except as required by law, to update any forward-looking statements or to conform these forward-looking statements to our actual results.

AN INVESTMENT IN THE COMPANY INVOLVES RISK, AND SEVERAL FACTORS COULD CAUSE THE ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS OF THE COMPANY TO BE MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS, PERFORMANCE OR ACHIEVEMENTS THAT MAY BE EXPRESSED OR IMPLIED BY STATEMENTS AND INFORMATION IN THIS PRESENTATION, INCLUDING, AMONG OTHERS, RISKS OR UNCERTAINTIES ASSOCIATED WITH THE COMPANY’S BUSINESS, SEGMENTS, DEVELOPMENT, GROWTH MANAGEMENT, FINANCING, MARKET ACCEPTANCE AND RELATIONS WITH CUSTOMERS, AND, MORE GENERALLY, GENERAL ECONOMIC AND BUSINESS CONDITIONS, CHANGES IN DOMESTIC AND FOREIGN LAWS AND REGULATIONS, TAXES, CHANGES IN COMPETITION AND PRICING ENVIRONMENTS, FLUCTUATIONS IN CURRENCY EXCHANGE RATES AND INTEREST RATES AND OTHER FACTORS.

SHOULD ONE OR MORE OF THESE RISKS OR UNCERTAINTIES MATERIALISE, OR SHOULD UNDERLYING ASSUMPTIONS PROVE INCORRECT, ACTUAL RESULTS MAY VARY MATERIALLY FROM THOSE DESCRIBED IN THIS PRESENTATION. THE COMPANY DOES NOT INTEND, AND DOES NOT ASSUME ANY OBLIGATION, TO UPDATE OR CORRECT THE INFORMATION INCLUDED IN THIS PRESENTATION.

No representation or warranty (express or implied) is made as to, and no reliance should be placed on, any information, including projections, estimates, targets and opinions, contained herein, and no liability whatsoever is accepted as to any errors, omissions or misstatements contained herein, and, accordingly, none of the Company or the Managers or any of their parent, shareholders, subsidiaries or any such person’s officers or employees accepts any liability whatsoever arising directly or indirectly from the use of this document.

By attending or receiving this Presentation you acknowledge that you will be solely responsible for your own assessment of the market and the market position of the Company and that you will conduct your own analysis and be solely responsible for forming your own view of the potential future performance of the Company’s business.

This Presentation is confidential and is being communicated to persons who have professional experience, knowledge and expertise in matters relating to investments and are "investment professionals" for the purposes of article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 and only in circumstances where, in accordance with section 86(1) of the Financial and Services Markets Act 2000 ("FSMA") the requirement to provide an approved prospectus in accordance with the requirement under section 85 FSMA does not apply. This presentation is only directed at qualified investors and investment professionals and other persons should not rely on or act upon this presentation or any of its contents. Any investment or investment activity to which this communication relates is only available to and will only be engaged in with investment professionals. This Presentation (or any part of it) is not to be reproduced, distributed, passed on, or the contents otherwise divulged, directly or indirectly, to any other person (excluding an investment professional’s advisers) without the prior written consent of the Managers or the Company.

Neither the delivery of this Presentation nor any further discussions of the Company with any of the recipients shall, under any circumstances, create any implication that there has been no change in the affairs of the Company since the date of this Presentation.


Presentation overview

Presentation Overview

  • Braemar Engineering

  • LNG 101

  • North American Gas Market

  • Proposed FLNG Projects Overview

  • Why FLNG?

  • Obstacles to FLNG Projects in North America

  • Conclusions & Questions


B raemar e ngineering o verview

Braemar Engineering Overview

  • Braemar Engineering is an engineering company specializing for 20+ years in the marine, offshore and land-based gas industries.

  • Part of the Braemar Technical Services Group, supported by a worldwide network of offices with the ability to call on the support of over 400 technical staff of all disciplines.

  • Braemar Technical Services Group is a wholly owned subsidiary of Braemar Shipping Services PLC, a London Stock Exchange (BMS).


Lng 101

LNG 101


What is lng

What is LNG?

  • Liquefied Natural Gas (LNG) is a clear, colorless, odorless, non-toxic liquid

  • LNG is natural gas that has been cooled and condensed to a liquid at -162 °Celsius at atmospheric pressure

  • LNG is less than ½ the weight of water


Lng makeup

LNG Makeup

  • LNG almost has the same chemical make-up as regular pipeline quality gas that is used residentially

  • CO2 & H2Sboth removed prior to liquefaction


Liquefaction plant process overview

Liquefaction Plant Process Overview

Pre-treatment

Acid Gas (CO2 & H2S)

Feed Gas

Gas Treating

Dehydration & Mercury Removal

H20 & Hg

NGL Removal

Fractionation

Ethane

N2

Liquefaction

LPG

C5+

LNG

Storage


Main principle of liquefaction

Main principle of Liquefaction

Work

Low Pressure Vapor

Hot High Pressure Vapor

Compressor

Evaporator

Condenser

Warm Air

Cold Air

Heat Rejected to Ambient

Expansion Valve

Cold Liquid + Vapor

Liquid


Why liquefied

Why liquefied?

  • Natural gas is liquefied to reduce volume for transportation & storage

LNG

-162oC

610 1


Components of the lng supply chain

Components of the LNG Supply Chain

From the Gas Field to the Consumer’s Pipeline System

REGASIFICATION & STORAGE

LIQUEFACTION & STORAGE

EXPLORATION & PRODUCTION

SHIPPING


Typical lng export facility

Typical LNG Export Facility

Source: Cheniere


So what is flng

So what is FLNG?

Source: Hoegh LNG


Why export lng from north america

Why Export LNG from North America?


N orth a merican lng e xport b oom

North American LNGExport Boom


Approved lng e xport p rojects

Approved LNGExport Projects


P roposed lng e xport p rojects

Proposed LNGExport Projects


P roposed flng p rojects

Proposed FLNG Projects


N ear shore e xample

Near-shore Example

  • Excelerate – Port Lavaca

    • Eliminates motion from the equation

    • Opportunity to have land-based infrastructure to increase FLNG capacity

Source: Excelerate Energy


W hy f loating l ng

Why Floating LNG?

  • Permitting Advantages

  • Construction Schedule, Cost & Labor Pool

  • Conversion Opportunities

  • Site Location Flexibility

  • Plug & Play Opportunity

  • Moveable Asset


W hy f loating l ng1

Why Floating LNG?

  • Permitting Advantages

  • Construction Schedule, Cost & Labor Pool

  • Conversion Opportunities

  • Site Location Flexibility

  • Plug & Play Opportunity

  • Moveable Asset


P ermitting a dvantages

Permitting Advantages

  • Federal Energy Regulatory Commission (FERC) vs United States Maritime Administration (MARAD)

    • Near-shore vs. offshore difference

      • ~2 miles off the coast is under MARAD’s jurisdiction

    • MARAD defined timeline vs. indefinite FERC timeline

  • Smaller footprint

    • Less public opposition

    • Potential for less environmental impacts


W hy f loating l ng2

Why Floating LNG?

  • Permitting Advantages

  • Schedule, Cost & Labor Pool

  • Conversion Opportunities

  • Site Location Flexibility

  • Plug & Play Opportunity

  • Moveable Asset


S chedule c ost l abor p ool

Schedule, Cost &Labor Pool

  • Potential for shortened construction schedules

    • Fabrication yards vs site stick-built

  • Site location

    • Weather impacts

    • Canadian projects are relatively remote

      • Second-coming of Australian cost escalation?

      • Work camps required?


S chedule c ost l abor p ool1

Schedule, Cost &Labor Pool

  • Labor pool uncertainty

    • Enough labor/talent in Western Canada?

      • How many projects feasible at one time?

    • Competition in the Gulf Coast

      • Includes new chemical plant construction

        • Over $70 billion in CAPEX forecasted in US downstream sector through 2020


W hy f loating l ng3

Why Floating LNG?

  • Permitting Advantages

  • Construction Schedule, Cost & Labor Pool

  • Conversion Opportunities

  • Site Location Flexibility

  • Plug & Play Opportunity

  • Moveable Asset


C onversion o pportunities

Conversion Opportunities

  • FPSO conversions provide some level of comfort

  • Several concepts out for FLNG conversion opportunities utilizing retiring Moss LNGCs

  • Potential for lower CAPEX and time-to-market advantage

  • Limited liquefaction capacity


W hy f loating l ng4

Why Floating LNG?

  • Permitting Advantages

  • Construction Schedule, Cost & Labor Pool

  • Conversion Opportunities

  • Site Location Flexibility

  • Plug & Play Opportunity

  • Moveable Asset


S ite l ocation f lexibility

Site Location Flexibility

  • Footprint vs. available land space

    • Douglas Channel (steep terrain – lack of buildable land)

Source: Douglas Channel Energy


W hy f loating l ng5

Why Floating LNG?

  • Permitting Advantages

  • Construction Schedule, Cost & Labor Pool

  • Conversion Opportunities

  • Site Location Flexibility

  • Plug & Play Opportunity

  • Moveable Asset


P lug p lay o pportunity

Plug &Play Opportunity

  • One-size does fit all?

    • No, but the project design basis differences are much more minor than typical liquefaction projects

    • Pipeline quality gas

      • Less variability than typical liquefaction projects

  • More opportunity to design a solution that’s flexible enough for several locations


W hy f loating l ng6

Why Floating LNG?

  • Permitting Advantages

  • Construction Schedule, Cost & Labor Pool

  • Conversion Opportunities

  • Site Location Flexibility

  • Plug & Play Opportunity

  • Moveable Asset


M oveable a sset

Moveable Asset

  • Once upon a time…


A l ook b ack

ALook Back…


M oveable a sset1

Moveable Asset

Source: Shell


O bstacles to f lng

Obstacles to FLNG

  • Financing - Cost Uncertainty, Completion Guarantee & Insurance

  • Technical Challenges

  • Cooling Requirements

  • Efficiency vs. Safety

  • General Issues Within North America


O bstacles to f lng1

Obstacles to FLNG

  • Financing - Cost Uncertainty, Completion Guarantee & Insurance

  • Technical Challenges

  • Cooling Requirements

  • Efficiency vs. Safety

  • General Issues Within North America


Financing

Financing

  • FLNGs are relatively unproven

    • Only a few in construction and no existing FLNG’s in operation

      • CAPEX/OPEX uncertainty

  • Limited market capacity for risk

    • Unless a Major (ie. Shell, ExxonMobil, etc.) that can self-insure

  • Completion guarantee complexity

    • Hull, Topsides, Turret, Commissioning

      • Consortium may be required

  • Weather impact on insurance

    • Hurricanes


O bstacles to f lng2

Obstacles to FLNG

  • Financing - Cost Uncertainty, Completion Guarantee & Insurance

  • Technical Challenges

  • Cooling Requirements

  • Efficiency vs. Safety

  • General Issues Within North America


T echnical challenges

Technical Challenges

  • LNG storage capacity limits

  • Motions (offshore)

    • Impact to process & unloading operations

      • Pre-treatment is most sensitive to motion

      • Loading windows


O bstacles to f lng3

Obstacles to FLNG

  • Financing - Cost Uncertainty, Completion Guarantee & Insurance

  • Technical Challenges

  • Cooling Requirements

  • Efficiency vs. Safety

  • General Issues Within North America


C ooling r equirements

Cooling Requirements

  • Environmental permitting requirements in North America are unlikely to allow for open-loop water-cooling systems

    • Alternative options include air-cooling, closed loop water-cooling, cooling towers

  • Space requirements of air cooling are significant

    • Need to avoid re-circulation

    • Efficiency losses


O bstacles to f lng4

Obstacles to FLNG

  • Financing - Cost Uncertainty, Completion Guarantee & Insurance

  • Technical Challenges

  • Cooling Requirements

  • Efficiency vs. Safety

  • General Issues Within North America


Efficiency vs safety

Efficiency vs. Safety

  • Liquefaction process selection

    • Efficiency at the cost of safety?

      • Flammable refrigerants present greater risks

    • Safety gap requirements

      • Eats up valuable deck space

    • Incoming gas has a known present value


O bstacles to f lng5

Obstacles to FLNG

  • Financing - Cost Uncertainty, Completion Guarantee & Insurance

  • Technical Challenges

  • Cooling Requirements

  • Efficiency vs. Safety

  • General Issues


G eneral i ssues

General Issues

  • Pipeline Projects

    • Western Canada projects all face pipeline challenges

  • Panama Canal Expansion

    • Uncertainties in transit fees and completion dates

  • Competition

    • Limited appetite for LNG export projects?

  • Long-term Henry Hub pricing

    • Impacts of domestic gas uses increasing


L ooking f orward

Looking Forward

  • All of the following could lead to a succession of other FLNG off-shore projects proposed in North America

    • Long FERC delays

    • Labor costs escalate

    • FLNGs become more common with proven costs and schedules

      • Reduced risk will lead to more favorable financial environment


Thank you questions

Thank You & Questions?

Constantyn Gieskes

Phone713 820 9600

[email protected]

Websitewww.braemar.com

Braemar Engineering

2800 North Loop West, Suite 900

Houston, TX 77092

USA


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