Stephen Thompson, Poten & Partners: Monetising & commercialising Floating LNG

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Stephen Thompson, Manager, LNG & Gas, Asia Pacific, Poten & Partners delivered this presentation at the 2013 FLNG Forum in Perth. The two day conference brings attendees key insights into the technology and concepts that will unlock Australia’s stranded gas reserves. This event brings together case studies, keynote and technical presentations from the experts at the forefront of the Floating LNG projects. For more information about the forum, please visit the event website: http://www.informa.com.au/flngforum2013

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Stephen Thompson, Poten & Partners: Monetising & commercialising Floating LNG

  1. 1. Monetizing and commercializing FLNG Stephen Thompson © POTEN & PARTNERS 2008 CONFIDENTIAL MONTH 2008 Poten & Partners December 2013
  2. 2. Two basic business models, one key idea 1. FLNG to access difficult, remote reserves 2. FLNG to emulate FSRU success • But really a one “Janus-faced” value proposition External: Internal: COST COMPETENCY Past Future Janus, Roman god of beginnings and transitions © POTEN & PARTNERS 2009 CONFIDENTIAL © POTEN & PARTNERS December 2013 MONTH 2009 Page 1
  3. 3. Other, experimental business models may surprise • Caribbean FLRSU, which may be first FLNG capacity on stream, already breaks the mould (putting it mildly) • • • • • • Artist’s view of Caribbean LNG facility (at bottom) Small Canadian independent Pacific Rubiales will obtain barge from Exmar under a BOO contract EPCIC contract to Wison Offshore & Marine Ltd and constructed in Nantong, China Non-propelled barge equipped to make ~500,000 tons of LNG per annum or regasify up to 3.1 MMt/y Onboard tank capacity of 14,000m3, to be offloaded either to permanently-moored FSU or shuttle tankers Jetty-moored and supplied with gas by pipeline from the onshore La Creciente field, Colombia Black & Veatch has been contracted for topside liquefaction equipment and packages, on-site commissioning and startup services © POTEN & PARTNERS 2009 CONFIDENTIAL © POTEN & PARTNERS December 2013 MONTH 2009 Page 2
  4. 4. Difficult, remote reserves • • • Sub-economical size Far from shore / supporting infrastructure But is this really driving decision-making? Shell’s Prelude FLNG and INPEX’s Ichthys onshore project have virtually the same location Bonaparte source fields © POTEN & PARTNERS 2009 CONFIDENTIAL © POTEN & PARTNERS December 2013 MONTH 2009 Page 3 Bonaparte FLNG will be located relatively close to shore and adjacent to Ichthys pipeline
  5. 5. From Shell’s website • • • Moving the production and processing out to sea where the gas is found is a major innovation that brings huge new energy resources within reach. It also helps to avoid the potential environmental impact of constructing and operating a plant on land, including laying pipelines to shore and building other infrastructure. We are surging ahead with the world’s first floating liquefied natural gas facility, Prelude FLNG, off Australia’s north-west coast. We expect Prelude FLNG to be the first of many FLNG projects. This approach makes it possible to unlock new natural gas resources, including smaller, remote fields as well as large fields supported by several facilities. There are also plans to use our FLNG technology and expertise elsewhere. Prelude = Janus? © POTEN & PARTNERS 2009 CONFIDENTIAL © POTEN & PARTNERS December 2013 MONTH 2009 Page 4
  6. 6. If FSRUs are such a great idea, why not FLNG? © POTEN & PARTNERS 2009 CONFIDENTIAL © POTEN & PARTNERS December 2013 MONTH 2009 Page 5
  7. 7. FSRU advantages and players • FSRU advantages vs. onshore terminal • • • • • • Three firms dominate FSRU segment Faster Small onshore footprint (permitting, NIMBY) Less site-specific engineering Allows outsourcing to specialized firms Lower capital outlay Greater predictability FLNG projects with FSRU "triumvirate" sponsors Project MMt/y Owner Lavaca Bay LNG Export 4.0 Excelerate BC LNG 0.8 Golar? PNG FLNG 3.0 Hoegh Companies are also pursuing other (unspecified) opportunities © POTEN & PARTNERS 2009 CONFIDENTIAL © POTEN & PARTNERS December 2013 MONTH 2009 Page 6
  8. 8. In case you didn’t believe me From most recent Golar investor presentation From Excelerate’s webpage Unlike any other floating liquefaction design, the Evolution FLSO provides an effective solution at minimal cost. It significantly reduces, or even eliminates, the need for a civil footprint. Because it is built in the controlled environment of a shipyard, the FLSO can be brought to market faster and more efficiently, contributing to a higher degree of quality on a tighter schedule. The design integrates proven and/or tested technology, minimizing the need for fixed infrastructure while reducing environmental impact. It is able to accommodate a broad range of gas-quality specifications. Equally important is that it can be delivered in approximately 44 months from final investment decision to first LNG. The FLSO is expected to open new markets around the world, utilizing environmentally friendly technology while creating greater economic upside – another innovative solution that echoes this basic philosophy and is in keeping with the Excelerate Energy tradition. © POTEN & PARTNERS 2009 CONFIDENTIAL © POTEN & PARTNERS December 2013 MONTH 2009 Page 7
  9. 9. Two business models refer to two broadly different opportunity sets Business models gravitate toward different resources Trekkies FSRU aficionados • • • • • • • • • • • Larger reserves More difficult feedgas More challenging sites Bigger vessels More sophisticated liquefaction technology Resource-holder driven • Smaller reserves/pipeline Easier feedgas Near-shore/dockside Smaller vessels Simpler liquefaction technology Facility-provider driven Disputed middle © POTEN & PARTNERS 2009 CONFIDENTIAL © POTEN & PARTNERS December 2013 MONTH 2009 Page 8
  10. 10. Optimal size may be in the disputed middle Facility size will be a compromise • • • Economies of scale should apply to liquefaction facilities on deck and ship hull, but may not apply to structural elements supporting the topside facilities Higher liquefaction efficiency for larger FLNG unit, but more deck space required Length Width Capacity But huge variation between facilities is possible: (meters) (meters) (MMt/y) Scarborough Prelude P/S © POTEN & PARTNERS 2009 CONFIDENTIAL © POTEN & PARTNERS December 2013 MONTH 2009 Page 9 495 488 99% 75 74 99% 6-7 3.6 55%
  11. 11. Cost and competence From Trunkline, Woodside’s in-house magazine Woodside has been at the vanguard of many significant developments in the Australian oil and gas industry… and we continue to seek innovation in a range of areas. So it’s quite fitting that we find ourselves once again at the forefront as floating LNG (FLNG) technology emerges as a potential “game changer” for the industry. Steve Rogers, Woodside’s senior vice president Browse, says FLNG is the next step in the evolution of hydrocarbon production. “It has the potential to be a game changer in the oil and gas industry,” Steve says. “We have the right people, plan and resources in place… Th[e] development concept will use the same FLNG technology pioneered by Shell and applied in the construction of its Prelude FLNG facility which is set to become the world’s first FLNG facility. © POTEN & PARTNERS 2009 CONFIDENTIAL © POTEN & PARTNERS December 2013 MONTH 2009 Page 10
  12. 12. But Janus may be hallucinating • On cost + + + • − − − Eliminates pipeline Eliminates separate offshore processing Much work done in controlled, lowercost environment of shipyard − − Additional cost for vessel movement Additional cost for tight design Potential performance issues/downtime Maintenance and repair complications Higher operating expenses On competence • • How relevant are existing skills, e.g., from FSRUs to FLNG? How long will it take, and how much will it cost, to develop the new innovations and capabilities needed to successfully execute projects? – – – • • Design Construction Operation How easily can these skills be migrated between projects? Will portable know-how remain with the first movers or leak out to followers? © POTEN & PARTNERS 2009 CONFIDENTIAL © POTEN & PARTNERS December 2013 MONTH 2009 Page 11
  13. 13. A range of future scenarios are viable • Onshore plant marginal cost • • • • Gorgon APLNG Captures market from onshore, APLNG x 85% down industry marginal cost pushes Flops Offshore plant experience curves • • • High/None Medium/Small Low/Large PENDING Niche play at best Competitive at margin after first few units © POTEN & PARTNERS 2009 CONFIDENTIAL © POTEN & PARTNERS December 2013 MONTH 2009 Page 12
  14. 14. Other stakeholders have different drivers • Floating LNG transfers some of the economic benefit during construction from the host country, where the resources are located, to the country where the facility is built • • • Australian Maritime Workers Union protests FLNG WA parliament, June 2013 Korea for Prelude and Sarawak China for Pacific Rubiales Not every one is happy with this, e.g., • • Timor Leste has vehemently opposed development of Sunrise as an FLNG project, insisting on a greenfield plant on East Timor West Australian premier Colin Barnett has threatened to block development of Browse as an FLNG project after onshore construction at James Price Point fell through © POTEN & PARTNERS 2009 CONFIDENTIAL © POTEN & PARTNERS December 2013 MONTH 2009 Page 13
  15. 15. Government industrial policy is ascendant • • • Commercial lenders’ share of has dropped from almost three quarters since 2010 to less than half, while ECAs have increased their share from a fifth to around half Shift toward ECAs is consistent with post-GFC damage to money-center banks, as well as “national champion” style capitalism Financing for Caribbean FLRSU will come from IFC and China and US EXIM banks • IFC is lead and is also making an equity investment ECA league tables © POTEN & PARTNERS 2009 CONFIDENTIAL Project finance disbursements to Oil & Gas sector Project with both ECAs/DFAs and commercial banks Source: Baker & McKenzie © POTEN & PARTNERS December 2013 MONTH 2009 Page 14
  16. 16. Summary • Two basic models • FLNG to access difficult, remote reserves • FLNG to emulate FSRU success Other, experimental models may surprise • A “Janus-faced” value proposition • • • The two models have broadly different opportunity sets • • Optimal size may be in the disputed middle Cost and competency advantages may be elusive • • • External: Cost Internal: Competency FLNG could turn out to be an industry champion, a flop, or somewhere in between If it succeeds, it is not clear that FLNG providers will make long-term economic profits A contest is brewing between resource-holder and facility-provider governments • Outcomes where both lose are possible © POTEN & PARTNERS 2009 CONFIDENTIAL © POTEN & PARTNERS December 2013 MONTH 2009 Page 15
  17. 17. LNG & NATURAL GAS CONSULTING CONTACTS: © POTEN & PARTNERS 2009 CONFIDENTIAL © POTEN & PARTNERS December 2013 MONTH 2009 AMERICAS NEW YORK Jim Briggs jbriggs@poten.com Tel: +1 212 230 2000 AMERICAS HOUSTON Daryl Houghton dhoughton@poten.com Tel: +1 Page 16 917 225 7636 EUROPE, MIDDLE EAST, AFRICA LONDON Graham Hartnell ghartnell@poten.com Tel: +44 207 493 7272 ASIA PACIFIC PERTH Stephen Thompson sthompson@poten.com Tel: +61 8 6468 7942

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