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FLNG market forecast – Part One

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Natural gas to lead energy demand

There are many different views on the future of energy supplies, but strong agreement in two areas; over the next 25 years or so population growth and GDP growth in the developing economies, particularly China and India, will drive global energy demand to increase by some 50% and secondly; while oil’s share of the energy mix will decline, the largest growth will be in consumption of natural gas. Why? Natural gas is an outstanding fuel for power generation, gas-fired power plants have the lowest Capex, it produces less than half of the CO2 emissions of coal, it is relatively cheap and there are abundant reserves – the International Energy Agency (IEA) suggests sufficient to last 230 years at current consumption levels.

In Asia it is not just China and India that are propelling growth; the Southeast Asian nations are also contributing to the dynamic shift. Currently, the region’s per-capita energy consumption is suppressed due to the lack of access to electricity. However, as this is addressed, demand is expected to increase by more than 80% by 2040.

Oil, however, is a different subject. It is maintaining a high price and shows signs of an approaching peak in conventional supplies. Some would say that conventional supplies have peaked – between 2003 and 2010 it seems that the world’s top-eight international oil companies all saw a peak in production. Furthermore, between 2000 and 2012 the net growth in global oil supplies came from unconventionals, such as the US shale and Canadian oil sands, neither of which rate as cheap oil. Any restrictions in oil supplies will also serve to increase the demand for natural gas.

Importance of LNG

Most natural gas is used in the region of production, resulting in major pipeline networks in Europe and the US. However, many of the largest reserves are often great distances from markets and unlike oil, gas is expensive to transport as pipelines start to become economically unviable much beyond 1000 km. In this situation, liquefaction offers an alternative. By cooling the gas to -162 Celsius the gas liquefies and reduces to one six hundredth of its volume, allowing transportation in large insulated tanks on specially designed gas carrier ships.  

Liquefaction requires specially built, high-cost complex plants, often containing several parallel process ‘trains’. Accordingly, LNG plants are expensive. However, the cost of alternative energy sources is increasingly making LNG an option in many markets, Japan being a leading example, where prices are in the order of US$ 16, compared with US$ 9 in Europe and US$ 4 in the US.  

Some 30% of global natural gas imports are already being delivered via LNG. Supply growth in recent years has been from LNG plants in Africa, and the Middle East countries of Qatar and Yemen. Considerable investment is being made in additional plants and in 2014-15 Australia should greatly add to supplies. Potential future sources of supply also include Canada, Russia, East Africa, the Eastern Mediterranean and indeed US shale gas, when political objections to natural gas exports are overcome. According to the Douglas-Westwood’s World LNG Market Forecast’, over the period 2013 to 2017 US$ 143 billion will be spent on liquefaction plants, US$ 35 billion on LNG carriers and US$ 50 billion on LNG import facilities. The total is double that of the previous five-year period.


However, large reserves of natural gas lie stranded offshore, beyond the economic reach of pipelines. In order to address this opportunity, floating LNG (FLNG) vessels have been designed with the first ones now under construction. A floating offshore LNG vessel eliminates the need for costly production platforms and long subsea pipelines to the shore. There are also other advantages; FLNG has attractions in providing more secure operations than onshore plants in regions with unrest such as West Africa. It also offers a solution for unwanted associated gas from oil production, which has traditionally been re-injected into fields or burnt off, resulting in environmental damage. In addition, FLNG reduces the need to construct onshore facilities in environmentally sensitive areas.

In some situations an FLNG vessel built in a specialist shipyard can offer a lower-cost solution than a one-off ‘stick built’ plant onshore. However, an FLNG vessel is still a high cost item with significant technical challenges.

Build of the world’s first FLNG vessel, to be used on Shell’s Prelude, is now underway. The vessel will be the largest ever made, at 488 m long and 74m wide, and will displace more water than six aircraft carriers. It will be moored at location for 25 years with expected production capacity of 3.6 million tpa of LNG. It will be part of the pioneering batch of FLNG vessels and its success is key to the future of FLNG projects. Shell awarded the design, construction and installation to the Technip-Samsung Consortium in 2011.

Written by Amanda Tay, Douglas Westwood. Edited by

Part Two of this article is available here: 'FLNG market forecast - Part Two'

Article contents sourced from Douglas-Westwood’s reports:

The World FLNG Market Forecast 2014-2020 includes comprehensive examination, analysis and a 14 year view of FLNG expenditure, with historic data covering the period 2007-2013 and forecast data for 2014-2020.

The World LNG Market Forecast 2013-2017 details LNG trends by region and facility type, supported by analysis and insight for strategy teams within shipping companies, contractors, shipbuilders, oil & gas operators, gas utilities and financial institutions. Essential reading for companies associated with the LNG industry and potential entrants.

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