Floating Regasification – a reality check

Many years ago, an old sea bear and a good friend told me that whatever you do on land is inevitably harder when you are on the water. Space is confined and processes designed for still land are exposed to all kinds of movements.

This simple deduction stuck with me and shaped my thinking when it comes to industrial processes off the shore – especially when it comes to LNG.

At the last GasTech, FSRU’s were all the rage. No wonder those vessels are being noted as technologically mature by now. They also appear to be a quick way to get LNG into a yet-to-be-developed market for LNG. And to be open with you – this reasoning strikes more than just a cord with any sane person.

Tuck the processing part of the receiving terminal onto the vessel and henceforth you deliver Natural Gas, not a super-cold liquid that needs processing before it can be used. Besides, all the design, engineering, and building parts can be done in the dock of a shipyard instead of some point in the total wilderness (potentially) providing lots of savings as the plants come all built up, pre-tried, pre-stress-tested to the theater of operations. Wherever this may be.

Cool …

However, no matter how cool those vessels are (hey, they are truly neat and I have nothing but admiration for the folks putting those swimming processing plants together), they are no key to eternal bliss for everyone wanting to have a quick regasification terminal up and running in little time.

FSRUs are still basically ships with a constrained deck space where industrial processes must be performed in perpetual movement. That’s not a technological problem as the processes involved do not do much more than exchange heat. It rather is a problem of putting things – that were designed for operations from the solid ground – onto a wallowing deck. Those are really big boats, so they cannot enter any little bitsy harbor just as LNG Carriers can’t go everywhere. Even some deep-water harbors need dredging to put those FSRUs there.

But for all their enormous size, compared to the storage capacity of even a smaller terminal, they are very restricted. Let’s imagine a 300,000 m3 LNG terminal with two 150,000 m3 tanks. That’s not super large – but a decent size. If a vessel with 145,000 m3 of LNG comes in (and that’s more or less what you see most often today), one tank is likely enough to discharge the entire vessel. If there is something left – because the chosen tank has not been empty – there is a strong chance that the other tank can take the over-spill.

And even with the comfort of this kind of tank capacity, making sure that the next vessel can dump his entire cargo at once, is one of the most important things on the mind of any terminal manager.

Now imagine this same vessel arrives at a 150,000 m3 FSRU – which is not the most uncommon size by the way. The FSRU is just a sliver bigger than the cargo vessel so the terminal manager needs to make sure to empty his tanks before the new LNGC comes to dump.

If then, the cargo vessel just shows up one day late because there was some event (storm, machines broke down, …) then there is no more LNG left to vaporize, and the send-out capacity of the terminal goes to zero. In the worst case and if the delay becomes substantial, the FSRU warms up which means tanks need to be cooled down before the transport vessel can unload which again needs time putting further strain on the supply chain. This is all manageable, but as there always needs to be plenty of time spacing between the slots to be sure that there is no bust-up, running those terminals on base load is elusive.

The numbers advanced by the FSRU owners and operators are all prettied up as they claim that an FSRU can run like an onshore terminal. They look good in theory but anyone who has expertise in running an FSRU will be blunt about it. They never work like clockwork in real life. Too small and too many things mess with operations.

Let’s come to cost. It is often said that an FSRU is less investment than an onshore terminal. The problem is that the CAPEX, which sits in an onshore terminal, is transformed into a Time Charter in this case which makes it look a bit like the upfront investment is much smaller. In reality, it’s just the very same CAPEX items that have been transformed into OPEX and hence payable during the life of the terminal and those Time Charters come very expensively.

Any FSRU is always a lot more expensive than an onshore terminal of the same size.

Our 300,000 m3 terminal could today be built for around 400 MM USD or a sliver more and very low OPEX depending of course very strongly on the local conditions. I know that there are higher numbers out there but the LNG building hype is over now so trust me, this can be done for 400MM. There might be cases where some special work needs to be conducted so this makes the final bill a little higher but generally, that’s the ballpark we are in.

The FSRU will cost about 100 MM (there are still jetties, pipe connections, and potentially a lot of dredging) in upfront investment with steep Time Charters to pay thereon. Plus, the FSRU is much smaller (about half size), and hence much less throughput can be processed which makes it an infinitely less useful terminal for the user (remember the small tank?).

Let’s do the math. 400 MM minus 100 MM is 300 MM CAPEX less for the FSRU. But there is still the Time Charter (no onshore terminal pays this) which is today easy 100,000 per day which means 36.5 MM per year. This means that in about 7 years, the Time Charter has paid for the tanks, and from this point on the regas terminal comes comparatively real cheap. The numbers are of course not that simple as the onshore terminal still has OPEX but this is still a far cry from the FSRU in terms of total cash.

Let’s attack the time factor now. FSRUs are essentially ready to go instantly.

Really?

First, there need to be preparations at the harbor of operation for the FSRU which take usually around a year to complete. But then, you need to have an FSRU ready for action. But since LNG has become cheap now and as those prices are expected to stay low for a little while, there suddenly is enormous demand for FSRUs. Now they are hard to get and if you ever get one, you will pay a steep price. The times of cheap FSRU’s are over – at least for a little while. So waiting for an FSRU to be available for your project might make you wait for years. Or you pay high. Pick your torture.

Are FSRUs all bad then? Absolutely not.

If they are used the right way, they are technical marvels that will serve you well if you understand your situation well and know what you are doing. You must use them the right way for the right set of circumstances to give you pleasure.

So, what’s the right use then?

Let’s come back to the size of the vessel for a moment. Most of the newly built FSRUs in the shipyards today are in the 170,000 m3 range. This means, that one can safely unload vessels up to 150,000 m3 there at once which will cover most of the LNGC fleet of this planet. Still, this means that every time they want to take in a new load, they must go very close to their heel to make enough space which means that the dance of the vessels must be well choreographed. No demand variation can be accommodated with this arrangement. Or variation is built artificially at astronomic cost as the real throughput of your installation goes down a lot or the transport chain involves a lot of LNGC vessel parking.

If there is an LNG hub nearby that is willing and able to dispatch a vessel at short notice to keep the terminal running, this might just work out for you. Better still if the nearby hub dispatches much smaller vessels (let’s say 125,000 m3 as this would enable the FSRU to keep significant spare for the next vessel and the dance of the vessels does not have to be so precarious. In those instances, FSRUs are great tools to open a new market or hook a city that has no access to gas otherwise into the network.

But if there are strong demand variations, if the terminal is far away from any potential hub (and I will define the notion of an LNG hub a bit further in another post), or if the throughput needs are colossal, skip the FSRU and go for the steel and mortar kind. It’s going to take you a little longer to get it up and running but it will save you a big wad of bucks and it’s not going to make you mad as you will be able to tailor its operations to your needs.

Plus, if ever you think of expanding for whatever reason, you just put another tank or some more vaporizers there.

However, if you need a quick solution, put an FSU (Floating Storage Unit) which is essentially a regular transport vessel fixed on a berth and acting as a floating tank, and put some vaporizers on the ground (that’s, not the deal-breaker, believe me) and you will need the jetty anyhow and build the onshore tanks while your FSU makes up for them fully knowing that the current mess is not going to last.

FSRUs are great for peak markets where for some months demand just goes through the roof for a little while, and they need a way to cover that. That’s Brazil, that’s Kuwait, that’s Dubai. In those peak markets, the peaks are so incredibly expensive that even a super-expensive FSRU makes sense. Anything makes sense there if it just works. However, in a base-load market, you need something more solid.

You need a big, classic, solid, reliable, concrete gray, onshore terminal on your coast, not a flimsy FSRU.