The Investment Case For Floating LNG

Floating liquefied natural gas (FLNG) technology is back as surging natural gas prices and a focus on a coal-to-gas switch in the world’s key gas import market, Asia, seem to have renewed demand for offshore LNG facilities to tap remote or currently stranded gas assets. 

FLNG is just a small part of the growing global LNG market, accounting for around 5 percent of it. Yet, record-high LNG prices in recent months, expectations of continuously rising gas demand—especially in Asia—for decades, and efforts to reduce power generation emissions are giving a new life to floating LNG technology. 

FLNG projects have much lower capacity than onshore liquefaction facilities, but they can be flexible and can move to various locations to process gas in remote offshore sites or process gas from oil projects that is sometimes flared. 

Some technical challenges also exist with the mobile LNG units. Yet, FLNG projects have lower capital investment costs than huge onshore plants and offer earlier returns on investment at a time when companies are sticking to capital discipline in light of increased volatility on the commodity markets. 

Before the pandemic, FLNG projects faced difficulties obtaining the necessary partners, buyers, and financing against huge high-capacity projects, Wood Mackenzie said back in 2019.

“The lack of economy of scale is likely to limit FLNG projects to small scale and remote developments as it competes for buyers, financing and partners in a busy LNG marketplace. However, FLNG has established itself as a credible development option and – with further experience and cost reduction – further projects may quickly appear in an otherwise quiet FLNG FID outlook,” WoodMac said a year before COVID upended all commodity markets and demand projections. 

LNG Demand Set For Continuous Growth

The pandemic didn’t upend the forecast that LNG demand would continue to grow as power and industrial demand rises and countries look to use more gas in the power mix at the expense of coal, especially in the fastest-growing gas market, Asia. 

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Asia’s natural gas demand is set to nearly double by 2050, Wood Mackenzie said last week, noting that the region needs incentives and investments in domestic supply if it is to avert the next gas crisis and cater to its energy security. 

At the same time, spot LNG prices in Asia are holding at levels close to the October records, at $36.10 per million British thermal units (MMBtu) as of last week, industry sources told Reuters. 

FLNG Is Popular Again

Thanks to high prices and demand, as well as the benefits of gas compared to coal in terms of emissions in power generation, floating LNG projects are attractive again and could play an important role in filling in a niche on the LNG market in coming years, analysts tell Houston Chronicle’s Marcy de Luna. 

“There seems to be renewed interest in FLNGs,” Rystad Energy analyst Kaushal Ramesh told…