Gas Powered: FSRUs On The Rise Again?

FSRU-Independence

The FSRU fleet has grown fairly rapidly over the last decade, supported by growing global gas demand and LNG trade. In the wake of the offshore downturn, FSRU contracting slowed – but there has been a notable increase in activity in recent months. Given low gas prices and expectations of continuing gas demand growth, is the uptick in contracting an indication of further things to come for FSRUs?

New And Improved

Floating Storage and Regasification Units (FSRUs) are mobile regasification terminals used to receive LNG cargoes. They entail fewer regulatory issues, are cheaper and quicker to build, and are also re-deployable to meet seasonal gas demand. There are two forms of FSRUs: ‘pure’ FSRUs used solely for regasification and FSRU-LNGCs, which are also capable of transporting LNG cargoes. As gas demand grew at an annual average rate of around 3% from 2005 to 2016, the FSRU fleet expanded from just the “Excelsior” in 2005 to 24 units as of start April 2017 (and 12 units are currently on order). However, the offshore downturn inhibited investment in FSRUs for a time: no orders were made from October 2015 until November 2016 – a lull even for a low-volume sector like the FSRU market.

Rising Interest

Interest in FSRUs seems to have picked up in recent months, with five FSRU orders placed between start December and end March, representing 19% of all offshore contracts placed in this period. Two of these orders reportedly have long-term charters lined up: Hoegh LNG’s “FSRU #9” is set to be deployed off Pakistan on a 20-year charter with GEIL, while the FSRU unit ordered by Kolin Construction is set to be deployed off Turkey.

Global gas demand is projected by major energy forecasting agencies (such as the IEA) to grow at a rate of around 1.5% to 2.0% a year until 2040, accounting for a growing share of the global energy mix. LNG is also expected to account for an increasing share of the global gas trade. In fact, there are currently eight mooted FSRU projects for which a unit has not yet been allocated and current low gas prices are another factor pointing to further potential FSRU contracting activity.

Robust Growth?

Moreover, new entrants with the relevant gas or offshore expertise have begun to enter the FSRU market, even without firm forward contract cover. For example, Maran Gas made its debut order for an FSRU-LNGC unit in December 2016 reportedly without first obtaining firm employment for the unit. Since commercial prospects for LNG carriers (LNGCs) remain challenged, LNGC owners might also be attempting to seek shelter in the relatively more positive FSRU-LNGC sector, as seen in orders placed by the likes of BW Gas, for example, in recent years. In addition to new entrants, established players in the FSRU sector, such as Golar, hold nine of the ten newbuild options for FSRUs. These ten options could nearly double the orderbook, if all were to be exercised.

So then, a combination of factors including favourable project economics, anticipated robust natural gas demand growth and owners looking to diversify seem to be aligning to the benefit of FSRU contracting. While still a niche sector, it does currently look as though there could be many further things to come for FSRUs.

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Source: Clarksons

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