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E xamining the N orth A merican M arket “ W hat is the P otential for F LNG”. 2014 Houston Marine Insurance Seminar September 23 rd , 2014 Constantyn Gieskes. Disclaimer.
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Examining the North American Market “What is the Potential for FLNG” 2014 Houston Marine Insurance Seminar September 23rd, 2014 Constantyn Gieskes
Disclaimer This Presentation has been produced by Braemar Engineering. This presentation is strictly confidential and may not be reproduced or redistributed, in whole or in part, to any other person. To the best of the knowledge of the Company, the information contained in this presentation dated February 2014 (the "Presentation") is in all material respect in accordance with the facts as of the date hereof, and contains no material omissions likely to affect its importance. However, no representation or warranty (express or implied) is made as to, and no reliance should be placed on, any information, including projections, estimates, targets and opinions, contained herein, and no liability whatsoever is accepted as to any errors, omissions or misstatements contained herein. This Presentation is not a prospectus and does not contain the same level of information as a prospectus. 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Presentation Overview • Braemar Engineering • LNG 101 • North American Gas Market • Proposed FLNG Projects Overview • Why FLNG? • Obstacles to FLNG Projects in North America • Conclusions & Questions
Braemar Engineering Overview • Braemar Engineering is an engineering company specializing for 20+ years in the marine, offshore and land-based gas industries. • Part of the Braemar Technical Services Group, supported by a worldwide network of offices with the ability to call on the support of over 400 technical staff of all disciplines. • Braemar Technical Services Group is a wholly owned subsidiary of Braemar Shipping Services PLC, a London Stock Exchange (BMS).
What is LNG? • Liquefied Natural Gas (LNG) is a clear, colorless, odorless, non-toxic liquid • LNG is natural gas that has been cooled and condensed to a liquid at -162 °Celsius at atmospheric pressure • LNG is less than ½ the weight of water
LNG Makeup • LNG almost has the same chemical make-up as regular pipeline quality gas that is used residentially • CO2 & H2Sboth removed prior to liquefaction
Liquefaction Plant Process Overview Pre-treatment Acid Gas (CO2 & H2S) Feed Gas Gas Treating Dehydration & Mercury Removal H20 & Hg NGL Removal Fractionation Ethane N2 Liquefaction LPG C5+ LNG Storage
Main principle of Liquefaction Work Low Pressure Vapor Hot High Pressure Vapor Compressor Evaporator Condenser Warm Air Cold Air Heat Rejected to Ambient Expansion Valve Cold Liquid + Vapor Liquid
Why liquefied? • Natural gas is liquefied to reduce volume for transportation & storage LNG -162oC 610 1
Components of the LNG Supply Chain From the Gas Field to the Consumer’s Pipeline System REGASIFICATION & STORAGE LIQUEFACTION & STORAGE EXPLORATION & PRODUCTION SHIPPING
Typical LNG Export Facility Source: Cheniere
So what is FLNG? Source: Hoegh LNG
Near-shore Example • Excelerate – Port Lavaca • Eliminates motion from the equation • Opportunity to have land-based infrastructure to increase FLNG capacity Source: Excelerate Energy
Why Floating LNG? • Permitting Advantages • Construction Schedule, Cost & Labor Pool • Conversion Opportunities • Site Location Flexibility • Plug & Play Opportunity • Moveable Asset
Why Floating LNG? • Permitting Advantages • Construction Schedule, Cost & Labor Pool • Conversion Opportunities • Site Location Flexibility • Plug & Play Opportunity • Moveable Asset
Permitting Advantages • Federal Energy Regulatory Commission (FERC) vs United States Maritime Administration (MARAD) • Near-shore vs. offshore difference • ~2 miles off the coast is under MARAD’s jurisdiction • MARAD defined timeline vs. indefinite FERC timeline • Smaller footprint • Less public opposition • Potential for less environmental impacts
Why Floating LNG? • Permitting Advantages • Schedule, Cost & Labor Pool • Conversion Opportunities • Site Location Flexibility • Plug & Play Opportunity • Moveable Asset
Schedule, Cost &Labor Pool • Potential for shortened construction schedules • Fabrication yards vs site stick-built • Site location • Weather impacts • Canadian projects are relatively remote • Second-coming of Australian cost escalation? • Work camps required?
Schedule, Cost &Labor Pool • Labor pool uncertainty • Enough labor/talent in Western Canada? • How many projects feasible at one time? • Competition in the Gulf Coast • Includes new chemical plant construction • Over $70 billion in CAPEX forecasted in US downstream sector through 2020
Why Floating LNG? • Permitting Advantages • Construction Schedule, Cost & Labor Pool • Conversion Opportunities • Site Location Flexibility • Plug & Play Opportunity • Moveable Asset
Conversion Opportunities • FPSO conversions provide some level of comfort • Several concepts out for FLNG conversion opportunities utilizing retiring Moss LNGCs • Potential for lower CAPEX and time-to-market advantage • Limited liquefaction capacity
Why Floating LNG? • Permitting Advantages • Construction Schedule, Cost & Labor Pool • Conversion Opportunities • Site Location Flexibility • Plug & Play Opportunity • Moveable Asset
Site Location Flexibility • Footprint vs. available land space • Douglas Channel (steep terrain – lack of buildable land) Source: Douglas Channel Energy
Why Floating LNG? • Permitting Advantages • Construction Schedule, Cost & Labor Pool • Conversion Opportunities • Site Location Flexibility • Plug & Play Opportunity • Moveable Asset
Plug &Play Opportunity • One-size does fit all? • No, but the project design basis differences are much more minor than typical liquefaction projects • Pipeline quality gas • Less variability than typical liquefaction projects • More opportunity to design a solution that’s flexible enough for several locations
Why Floating LNG? • Permitting Advantages • Construction Schedule, Cost & Labor Pool • Conversion Opportunities • Site Location Flexibility • Plug & Play Opportunity • Moveable Asset
Moveable Asset • Once upon a time…
Moveable Asset Source: Shell
Obstacles to FLNG • Financing - Cost Uncertainty, Completion Guarantee & Insurance • Technical Challenges • Cooling Requirements • Efficiency vs. Safety • General Issues Within North America
Obstacles to FLNG • Financing - Cost Uncertainty, Completion Guarantee & Insurance • Technical Challenges • Cooling Requirements • Efficiency vs. Safety • General Issues Within North America
Financing • FLNGs are relatively unproven • Only a few in construction and no existing FLNG’s in operation • CAPEX/OPEX uncertainty • Limited market capacity for risk • Unless a Major (ie. Shell, ExxonMobil, etc.) that can self-insure • Completion guarantee complexity • Hull, Topsides, Turret, Commissioning • Consortium may be required • Weather impact on insurance • Hurricanes
Obstacles to FLNG • Financing - Cost Uncertainty, Completion Guarantee & Insurance • Technical Challenges • Cooling Requirements • Efficiency vs. Safety • General Issues Within North America
Technical Challenges • LNG storage capacity limits • Motions (offshore) • Impact to process & unloading operations • Pre-treatment is most sensitive to motion • Loading windows
Obstacles to FLNG • Financing - Cost Uncertainty, Completion Guarantee & Insurance • Technical Challenges • Cooling Requirements • Efficiency vs. Safety • General Issues Within North America
Cooling Requirements • Environmental permitting requirements in North America are unlikely to allow for open-loop water-cooling systems • Alternative options include air-cooling, closed loop water-cooling, cooling towers • Space requirements of air cooling are significant • Need to avoid re-circulation • Efficiency losses
Obstacles to FLNG • Financing - Cost Uncertainty, Completion Guarantee & Insurance • Technical Challenges • Cooling Requirements • Efficiency vs. Safety • General Issues Within North America
Efficiency vs. Safety • Liquefaction process selection • Efficiency at the cost of safety? • Flammable refrigerants present greater risks • Safety gap requirements • Eats up valuable deck space • Incoming gas has a known present value
Obstacles to FLNG • Financing - Cost Uncertainty, Completion Guarantee & Insurance • Technical Challenges • Cooling Requirements • Efficiency vs. Safety • General Issues
General Issues • Pipeline Projects • Western Canada projects all face pipeline challenges • Panama Canal Expansion • Uncertainties in transit fees and completion dates • Competition • Limited appetite for LNG export projects? • Long-term Henry Hub pricing • Impacts of domestic gas uses increasing
Looking Forward • All of the following could lead to a succession of other FLNG off-shore projects proposed in North America • Long FERC delays • Labor costs escalate • FLNGs become more common with proven costs and schedules • Reduced risk will lead to more favorable financial environment
Thank You & Questions? Constantyn Gieskes Phone 713 820 9600 E-mail constantyn.gieskes@braemar.com Website www.braemar.com Braemar Engineering 2800 North Loop West, Suite 900 Houston, TX 77092 USA