ConocoPhillips: FSRUs are the Key to LNG Market Expansion

G.M. “Chip” Schuppert, Jr., Manager, Global LNG Marketing, ConocoPhillips

Chip Schuppert, ConocoPhillips’ Global LNG Marketing Manager spoke at the 2013 Offshore Technology Conference in Houston on the opportunities and challenges facing this developing sector.

Hundreds of billions of dollars are being invested into the expansion of LNG production and new trades are developing rapidly. As someone commented recently, LNG develops its own markets as production increases. And indeed it has. Schuppert notes that in 2003, 11 countries were importing LNG. 10 years later, that number has jumped to 24.

Floating Regasification and Storage Units (FSRUs) have been a key contributor to growth in new market development, says Schuppert.

These facilities can be a vital link for a new market where the cargo of liquid methane from an LNG carrier can be converted into its gaseous form on-board the vessel for direct delivery into shoreside gas pipelines.

It is worth noting that prior to the advent of FSRUs, an invention pioneered by Excelerate Energy and founder Kathleen Eisbrenner, expensive (and permanent) shoreside storage and regasification facilities had to be built in order to import LNG. Although shoreside facilities don’t have to contend with the same magnitude of corrosion or fatigue issues faced by floating facilities, the fact is that LNG markets can change relatively quickly, and the economics may not justify investment in shoreside facilities.

Schuppert notes the cost to build an LNG liquefaction plant has increased 5 to 10 fold over the past decade due to high demand for new liquefaction plant construction, higher material costs and a relatively short list of LNG-qualified Engineering Procurement and Construction (EPC) companies available to project sponsors and financiers.

In Argentina, for example, huge gas reserves have been found and companies like ExxonMobil are currently conducting exploration and production to bring this gas to market. In the mean time however, they still need to import gas. Rather than build a shore-based import terminal, an FSRU is being used. During an interview with Ed Scott, Chief Operating Officer at Excelerate, he notes that ”on some days, our peak output between our two FSRUs equates to 25 percent of Argentina’s total consumption… They have a ton of shale gas and resources in the south, but getting these resources to the demand centers in the north will take time.”

Excelerate owns the first LNG receiving facility in South America at the Bahia Blanca GasPort and currently has 8 FSRUs in operation worldwide, with a 9th currently under construction at DSME. This new vessel has a capacity of 173k cubic meters, with a 900 million cubic feet per day of send-out.

“FSRUs have decreased the critical mass of demand needed to be a viable new market and increased the speed of new market access,” comments Schuppert.

With LNG export initiative springing up all over North America, it’s a bit difficult to predict what the future really looks like. Schuppert notes that over 300 million tons per year of LNG export initiatives have been announced in North America alone. Putting that in perspective, the total LNG trade worldwide in 2012 equated to 240 million tons per year.

Schuppert believes that the answer will be determined by the market and is a strong advocate for letting the market and financiers determine where the right number is, rather than government regulated exports. ”My concern would be,” commented Schuppert during his presentation, “is that if the DOE puts out regulations that constrain things, first of all, they will be subject to potential legal disputes, but it will also extend the uncertainty. It’s better to let the market to work things out.”