Competitive Advantage of FSRUs Over Onshore LNG Terminals

LNG or liquefied natural gas regasification marine terminals are being developed in various locations worldwide to meet the demand for natural gas across many nations. These installations receive, store, and convert LNG from its condensed liquid form to its natural gas state, ready for power generation in industrial and residential applications.

At present, there are three major concepts for these marine terminals in sheltered waters, with the two most popular being onshore storage and regasification terminals and floating storage and regasification units (FSRU).

It is often said that the latter is the more economical solution compared to land-based terminals. There is some truth to this statement, given that FSRUs hold several key advantages over onshore terminals, which we will go over in more depth after a brief overview of the history of the former.

The History of FSRUs

The FSRU concept was born in 2005, driven by the need for an LNG storage and regasification solution capable of speedy delivery times. The first ever FSRU unit was created not from the ground up but from converting an existing LNG carrier. This endeavour became successful, which paved the way for more projects to be developed. The initial projects after that had shorter delivery times than onshore terminals, which was the main driver behind their continued development. That said, the installation of land-based terminal projects still proceeded with development to serve long-term operations.

Upon looking at the FSRUs installed today, there is a good reason for their development: some involve political factors, while others are more based on environmental constraints, public safety, schedule, or location. These are some of the main determining factors behind choosing FSRUs over onshore terminals, but does that mean they are a direct competitor to the latter? First, let us know become familiar with the many development advantages of FSRUs compared to competing terminal options to answer that question.

FSRU vs Onshore Terminal

  • Deployment Speed

Unlike onshore terminals, which take at least four to five years on average to complete, FRSUs have a reduced terminal construction time of only two to three years. This is thanks to the storage and regasification facilities being moved offshore, eliminating all onshore developments (except for the gas pipeline landfall), which helps speed up construction time. Maritime guides in Singapore also point to their less extensive permitting process than onshore development contributing to this swiftness. A prime example is the FRSU Independence built by Hyundai in South Korea, which was laid down in 2012 and launched in 2014 to supply all the natural gas required by Lithuania.

In contrast, onshore LNG terminals need space to house facilities like those mentioned earlier, including many others like a jetty or harbour, proper health and safety standards segmentation, and more. All these are necessary to accommodate the immense scope of activities involved in loading and unloading LNG from vessels in a land-based terminal. This translates to a time-consuming initial land development phase, like flattening the coastal project site.

For instance, Europe’s largest LNG terminal, called the South Hook LNG terminal located near Milford Haven, United Kingdom, began construction in 2004 yet did not get commissioned until 2009.

  • Lower Capital Costs

Onshore LNG terminals can cost 1 billion dollars in investment and upwards, along with numerous other upfront costs. As such, these installations are typically considered long term-investments as it will be years before they show ROI or breakeven. On the other hand, capital costs for FSRUs are lower than onshore facilities, with greater cost reduction in developments that use a refurbished LNGC to construct the FRSU. The FSRU Independence mentioned earlier cost Ca. USD 330,000,000 to build. Furthermore, ownership of the vessel can be separated by charter from the shipowner.

  • Flexibility

The mobile nature of FSRUs enables unparalleled flexibility in delivering LNG to new markets and for a collapsed model of operations. Apart from their core purpose, these vessels can also serve other applications, such as an FSU or floating storage unit or a traditional LNG vessel. The availability of these options can add immense value under the right market conditions.

In addition, FSRUs can supply an early gas option before the decision to develop a permanent onshore terminal goes through. And should the need arise, companies can ‘retire’ and re-use their FSRU infrastructure for a low cost, reducing risk around stranded regas assets. The other ways FSRUs make for a flexible solution for storage and regasification that is increasing in value as the LNG market evolves include:

Conclusion

Going back to whether FSRUs directly compete against traditional land-based terminals, the answer is not exactly. Rather, it is more accurate to say that the two concepts complement each other due to being widely different projects. In other words, the value that FSRUs contribute to the LNG value chain is widely different to that of land-based terminals.

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