Looking at Evolution of FSRU Market in Project Development and LNG
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p1-12:LNG 3 11/03/2016 10:18 Page 1 64 pages essential LNG news! March 2016 In this issue: 1 Looking at evolution of FSRU market in project development and LNG Looking at evolution of FSRU market in finance Philip Weems, Nick Kouvaritakis and Richard Nelson of King & Spalding project development and LNG finance law firm in Houston and Singapore Philip Weems, Nick Kouvaritakis and Richard Nelson of King & Spalding law firm in Houston and Singapore 8 Opportunities exist in The growth of the floating storage and LNG and global gas regasification unit (FSRU) market has markets even in been exponential over the past decade. uncertain times The birth of the Floating LNG Hoe Wai Cheong, President, Oil & industry can be traced back to mid-2001, Gas, Black & Veatch when El Paso contracted with Belgian ship-owner Exmar to fit regasification 13 A round-up of latest units on board three existing new-build events, company and LNG ships and one new contracted LNG industry news ship at Korea's Daewoo Shipbuilding & Marine Engineering. For the Record The market has grown significantly ever since, with 18 FSRU projects now 38 ExxonMobil adopts new operational across the world. approach for design of Surprisingly, such growth has been modularized onshore achieved against the backdrop of a LNG export plants slowdown in emerging markets driven by Ashley Guy, Sorin Lupascu, Donna J. weak commodity prices. This article looks Increasing global production creates FSRU import opportunities Parker, Don Victory and Greg Henke, at the key drivers behind the growth in ExxonMobil Development Co. the FSRU market and how we expect the purchase, whereas the cost of developing Typically developers would opt to market to evolve in the future. a land-based terminal of comparable lease FSRUs on the basis of a day rate, size is likely to be in the region of 45 Malaysian shipping which can vary between US$130,000 and Cost differential US$1 billion [1]. US$155,000 per day[3]. executives say LNG Developers have a multitude of options to However, developers typically opt to However, it is hard to determine a carrier fleet is in a consider when structuring regasification lease FSRUs rather than purchase, “market rate” for FSRUs given the long-term game of projects. An important initial decision is which can be explained by a number number of different variables that need changing fortunes whether to opt for an onshore of factors. to be taken into account including: Company will gradually add to its regasification terminal or procure a capacity of the vessel; new-build versus vessels and modernize amid new opportunities in Asia-Pacific region floating regasification vessel. Owners converted LNG carrier; length of the If the latter, some consideration should First, the conventional FSRU owners charter; terms and conditions of charter; also be given to the type of vessel: FSRU, (BW, Excelerate, Golar, Hoegh and Mitsui credit support provided by charterer; and 49 LNG as fuel, now and in floating storage unit (FSU) with onshore OSK Lines) have long-standing jurisdiction specific risks such as the the future: How North regasification or floating power plant relationships with the dominant ship prevailing legal and taxation regimes in American shipping is a unit (FPPU). manufacturing yards and usually secure the country where the FSRU is deployed. main mover In terms of FSRU procurement, options for multiple FSRUs on the basis Roy Bleiberg, American Bureau developers need to decide whether to of discounted individual unit’s costs. Cleaner fuels of Shipping Director of Global lease or purchase and whether to elect Such discounts are unlikely to be While there has always been a significant Gas Solutions for a new-build vessel or convert an available to developers wishing to cost differential between FSRUs and existing LNG carrier (new-build vessels procure individual units directly from the onshore regasification terminals, the 53 World Carrier Fleet: often being preferred due to the yards. evolution of a preference towards FSRUs Details of LNG vessels cost savings associated with superior Second, the lack of operational is rooted in several other factors boil-off efficiency). experience is a deterrent for developers including the need to reutilize excess The cost differential between wishing to purchase FSRUs directly - shipping capacity and the necessity to 59 Tables of import and FSRUs and onshore regasification there are only 18 operational FSRU cater for seasonal gas demand. export LNG terminals terminals is significant: a new-build projects in the world[2] and very few In certain jurisdictions such as China and plants worldwide 170,000 cubic meter FSRU typically companies that have operational and Indonesia, the move towards FSRUs would cost in excess of US$250 million to experience of FSRUs. was in large part driven by the need to p1-12:LNG 3 11/03/2016 10:18 Page 2 PROJECTS diversify the energy mix and switch away demand and has already deployed two offshore gas discoveries are journal from crude and coal to cleaner fuels such FSRUs (“Hoegh Gallant” is moored next commercialized (Egypt). as gas. For Indonesia, FSRUs offered the to “BW Singapore” in Ain Sokhna) with lowest cost and fastest option to effect the plans for the procurement of a third Bangladesh switch to gas when compared with other FSRU in 2016.[6] We have also seen conventional gas procurement options such as onshore The contracting structures for FSRUs infrastructure concepts adopted in FSRU regasification or pipeline supply. have changed since Golar finalized the projects - in Bangladesh, PetroBangla LNG The World’s Leading publication Speed of deployment is influenced by time charter for the world’s first two has signed an agreement with Excelerate regulatory backdrop of relevant FSRUs to Petrobas back in 2007. which operates on a build-own-operate- Maritime Content Ltd jurisdiction. It has been stated that The market in 2007 was characterized transfer basis, where the FSRU is 1st Floor, 30 Warner Street FSRUs are up and running as much as by long-term charters with a minimum of transferred to PetroBangla at the end of London EC1R 5EX six times faster than onshore 10 to 15 years. the 15 year term [8]. United Kingdom regasification terminals[4]. In some instances, FSRU owners are www.LNGjournal.com +44 (0)20 7253 2700 While it is accurate to say that Flexibility willing to make investments further generally FSRUs are faster to deploy The contracting structures adopted in the downstream – Golar LNG has recently Publisher than onshore regasification terminals, early years were more conventional and announced that it is in talks with Stuart Fryer some of the obstacles and hurdles rigid. This was likely driven by the Brazilian power partners to provide an Editor surrounding the deployment of FSRUs lending banks, which, at the time, were FSRU to fuel a 1.5GW combined cycle John McKay should be considered in detail before cognizant of the development/technology power station in Sergipe (Northern [email protected] making any presumptions. Despite the risks associated with this fledgling Brazil). fact that FSRUs are moored offshore industry. Golar is reportedly participating in up Advertising there is often a complex permitting Fast forward almost a decade and the to 25 percent of the power project, which David Jeffries ONLY MEDIA LTD regime that needs to be navigated prior market fundamentals have evolved. envisages Golar making an equity Tel: +44 (0)20 8674 9444 to deploying an FSRU. Flexibility for the charterer is a investment in the project [9]. Fax: +44 (0)20 8674 2743 This may require a number of fundamental theme. Often developers have requested that [email protected] different licenses and permits relating to We have seen the emergence of some the FSRU owner is responsible for South Korean Representative (among others) environmental impact seasonal FSRU charters such as Golar’s operating and maintaining offshore Seung Hyun Doh and management, marine operation, gas 2013 charter with Kuwait National infrastructure such as the jetty and mobile: +82 2 547 0388 processing and trading, employment/ Petroleum Co. (KNPC) where the vessel potentially any interconnecting facilities. [email protected] social security of shipboard personnel is deployed as an FSRU for nine months This envisages the FSRU owner Subscriptions Sales Manager and often a general business or of the year and is free to pursue spot taking on an entirely different risk Elena Fuertes commercial license. carrier and other short-term business profile than a conventional FSRU Tel: + 44 (0) 7017 3416 opportunities for the charter and will typically [email protected] Perspective remaining three be priced into Additionally, from a tax perspective the months of the the rate of Production [7] Vivian Chee FSRU owner will typically have to apply year . hire. Tel: +44 (0) 20 8995 5540 for an import tax exemption (in respect of [email protected] the tax treatment of the vessel), in some cases an exemption from local Speed of deployment Subscription employment laws in connection with shipboard personnel and a Value Added is influenced by Print & online £655/810/US$1050 Tax (VAT) exemption in relation to the regulatory backdrop Online only £595/795/US$950 importation of goods and equipment in connection with the vessel. See website for more details of relevant jurisdiction. www.lngjournal.com Such regulatory requirements vary [email protected] significantly from project to project and ..FSRUs are up and hotline +44 (0)20 7017 3416 can cause significant delays to the deployment of the FSRU in the relevant running as much as six jurisdiction. No part of this publication may be reproduced That said, there are recent examples times faster than onshore or stored in any form by any mechanical, where FSRUs have been deployed swiftly electronic, photocopying, recording or other to address acute power shortages.