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Rethinking size and design of LNG projects

A. BLUME, Editor

At October’s HPI Forecast Breakfast for our sister publication, Hydrocarbon Processing, I shared Gas Processing’s forecast on change in the LNG industry.

The biggest trends we expect to see in LNG over the next few years are continuations from 2017. These trends include a looming shortage of LNG early next decade, compared with today’s oversupply; buyer preferences for short-term contracts and spot purchases; and progress on FID-secured LNG export projects in the US and Australia.

LNG production capacity is just under 340 metric MMtpy, and it is growing. By contrast, LNG demand was measured at around 265 metric MMtpy in 2016. Global LNG supply is expected to grow by around 30% from 2016 to 2020, which is equivalent to a new LNG train coming onstream every 2–3 mos over that 4-yr period. New LNG terminals that started up in 2016 in Australia continued the country’s LNG growth spurt. Other LNG projects that are under construction in Australia, as well as the US and Russia, could add as much as 112 metric MMtpy of capacity by 2020.

However, as buyers continue to move toward short-term contracts and spot market purchases, it could serve to discourage the construction of large LNG projects. A few major projects have already been canceled in the last couple of years, including the $40-B Browse project in Western Australia, which was canceled in early 2016. That project had been redesigned from an onshore terminal to a floating facility, which cut costs by around 35%—but the low pricing environment and lack of offtakers was still seen as too much risk.

Australia isn’t the only region seeing cancelations and skepticism about future profitability. The $28-B Aurora LNG project in Canada was canceled in September, after 4 yr of study, due to the unfavorable macro-economic environment.

This decision followed on the heels of Petronas’ cancelation of its $36-B Pacific NorthWest LNG project in July, due to market conditions. These two projects were to be built in British Columbia. Just a few years ago, the province was boasting the potential startup of three LNG terminals by 2020, out of around 20 that have been proposed.

For high-capacity LNG projects that source gas from large fields, securing long-term offtake contracts can make or break FID. But as buyers demand more flexibility, seasonality and availability, this presents a conundrum that could lead to tightness in LNG supply from around the middle of next decade. It would mark a significant change from the current market scenario, where a short-term glut of LNG is seen.

One solution to this problem, and to the problem of the decade-long construction time lines for large-scale projects, could come in the form of smaller-scale projects, both onshore and offshore. Mid- and small-scale FLNG vessels are being developed to capitalize on stranded gas reserves offshore Australia and elsewhere.

Also, small-scale onshore LNG terminals built from modular components can make use of small and stranded gas reserves, and they offer a quick time to market.

These types of projects could be good stop-gap solutions to some of the supply challenges developing in the LNG market. They also hold promise for meeting localized gas needs beyond the short term. GP


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