Wison Offshore & Marine has delivered the world’s first operational FLNG unit – albeit with a much smaller capacity than those its rivals are developing, writes Graham Lees
At a time when the upstream industry is in the doldrums, plunging China’s offshore service shipyards into crisis, a Chinese marine engineering company has pipped the rest of the world with the first floating LNG (FLNG) unit. A number of companies are developing FLNGs, which are intended to cut the time taken from extracting the gas to processing it into LNG for long distance transportation. Yet it was Wison Offshore & Marine that won the race at its Nantong shipyard on the Yangtze River estuary near Shanghai.
The FLNG, which successfully completed performance tests at the end of September, was commissioned by Belgian offshore services company and bulk fuel shipper Exmar and is destined for the Caribbean, where it will be moored 3 km off the coast of Tolu in northern Colombia.
China is often accused of playing catch-up in terms of technology development – a general issue that the country’s offshore services sector will have to overcome when the upstream industry gets back to business as prices begin to stabilise. It does however raise the question of how Wison achieved its world first, and how it managed to do so ahead of it competitors.
Wison won the engineering, procurement, construction, installation and commissioning (EPCIC) contract from Exmar in 2014, but in truth, the venture has drawn heavily on technology provided by US engineering giant Black & Veatch, which has been engaged in LNG work since the 1960s.
The Wison liquefaction barge, named the Caribbean FLNG, is using the US firm’s proprietary technology and Black & Veatch has been involved in onsite construction support. The latter’s topside design and engineering dovetailed with Wison’s hull fabrication design, the two sides said in a joint statement. Black & Veatch project director Bob Germinder added that the success of the venture was “based on long-standing trusted relationships”.
Another key lies in its size. Caribbean FLNG is small-scale, as senior vice president An Wenxin noted in a statement heralding the company’s achievement. It is capable of processing natural gas into 500,000 tonnes per year of LNG.
For Exmar however, the victory may be somewhat Pyrrhic. Wison’s unit was originally intended for use in converting gas from Columbia’s onshore La Creciente field, operated by a subsidiary of Pacific Exploration and Production (PEP). However, a collapse in gas prices at home and abroad led to the cancellation of Exmar’s contract in March 2016. In a statement, Exmar said that: “the domestic natural gas market in Colombia and international LNG market have changed substantially, making the liquefaction of LNG in Colombia no longer economic for PEP.”
The company said it would be pursuing other partners and potential destinations for the vessel, although a date for it to leave the shipyard has not yet been announced.
Small and nimble
Antwerp-based Exmar said that FLNGs “will drastically reduce time-to-market by providing floating liquefaction and storage in a cost-efficient and flexible way to gas fields located onshore and offshore, eliminating the need for large infrastructure on land.”
It is an emerging sector with large potential, An said, and that fact will certainly bring hefty competition into play to meet demand. Much bigger units than Caribbean will follow elsewhere; FLNGs are planned or under construction by Shell, Total, Petronas, Eni, Keppel and Statoil. Yet there has been a slowdown in some project developments owing to the slide in LNG prices caused by a supply glut.
The biggest of all is Shell’s Prelude FLNG, which has been in the planning and development phases since 2011. The slow progress derives in part from the sheer size of the project. Once operational it is planned to produce 3.6 million tonnes per year of LNG, 1.3 million tonnes of condensate and 400,000 tonnes of LPG.
Shell has not confirmed when its FLNG will be operational. Media reports have suggested it could be in the middle of 2017, with the final cost estimated at between US$10 billion and US$12 billion.
But small or large, the Exmar commission has cemented Wison’s position in the FLNG turnkey projects business, An believes.
“[F]LNG production, storage and transportation facilities are emerging markets with large potential,” he said. “The small-scale FLNG being delivered by Wison has design advantages with low-cost and compact features, providing the market with more economical and efficient solutions. By playing a key role in the LNG midstream supply chain, Wison is dedicated to provide clients with innovative solutions to monetise their gas field assets.”
The key advantage of an FLNG facility is that it can be positioned above an offshore gas field far from land and eliminate the need for expensive undersea pipelines. This will be especially beneficial to China as it bids to tap into South China Sea resources. The 780-km pipeline running between China National Offshore Oil Corporation’s (CNOOC) Yacheng field off Hainan Island to Hong Kong was damaged recently by a ship’s anchor dragging. Specialised engineers from STATS Group had to be brought in to raise the damaged section to the surface for repairs.
Analysts Douglas-Westwood forecast that despite continuing challenging upstream market conditions, global capital expenditure on FLNG facilities in 2017-22 would rise to US$41.6 billion compared with about US$11 billion in 2011-15.
“The protracted oil price downturn has impacted the sanctioning of capital-intensive liquefaction units over the last 24 months,” Douglas-Westwood said in its latest market study.
Liquefaction vessels will account for approximately 59% of the forecast expenditure, with the remaining 41% allocated to import and regasification terminals. Near-term growth in expenditure will be predominantly driven by a number of flagship liquefaction projects sanctioned prior to the oil price downturn, Douglas-Westwood said.
“Despite near-term concerns, the long-term viability of FLNG technology is clear. In the decades ahead, natural gas will continue to play an increasingly important role in meeting global energy demand. Furthermore, the rising cost of onshore development terminals and the shorter lead times of floating units make the technology a viable option in the current market environment.”
Wison Offshore & Marine is one of three subsidiaries of the privately owned Wison Group of Shanghai. Despite its Caribbean-bound liquefaction barge looking set to be overshadowed by giant floating facilities, its involvement with Exmar and Black &Veatch may mean it has found a leading edge niche market for the boutique end of the emerging FLNG industry.