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IPA, 2011 - 34th Annual Convention Proceedings, 2010

IPA10-BC-135

PROCEEDINGS, INDONESIAN PETROLEUM ASSOCIATION


Thirty-Fourth Annual Convention & Exhibition, May 2010
FLNG OR FGTL? INVESTMENT DECISION INPUT
W.D. Hartell*
J.R. Greenwald*

ABSTRACT
Large remote deepwater gas discoveries have
unique challenges with regard to becoming
commercial projects. Two options are floating
Liquefied Natural Gas (FLNG) and floating "Gas to
Liquids" (FGTL). These technologies include
several subsets that have specific advantages and
disadvantages depending on a range of investment
decision inputs which will determine which option
is appropriate for a particular development. Input to
these decisions will include governmental or
regulatory
requirements,
gas
reservoir
characteristics, facility issues, product pricing,
location of market(s), and risk.
Government or regulatory requirements include
taxation, cost recovery, domestic market
obligations, and procurement rules (including local
content). Gas reservoir characteristics include
reserves, production profiles, presence of
oil/condensate, and gas composition (methane C1,
ethane C2, propane C3, butane C4, C5+, water,
mercury, H2S, CO2, etc.). Facility issues range from
technical to commercial/contractual. Technical
facility issues include the number or size of floating
facilities required for production, storage,
offloading, and transport; processing risks
(reliability or safety); metocean constraints; project
schedules; constructability (including newbuild or
conversion);
and
operability.
Commercial/
contractual facility issues include capital
requirements and timing; purchase or lease;
depreciation; cost recovery. Product pricing issues
include selecting the market(s); determining pricing
mechanisms/formulas (floors, caps, ties to market
prices of other products, ability and timing of
repricing); market constraints (facilities for
redelivery and storage, take or pay); market trends;
and carbon view of selected product. Location of
the market(s) affects both pricing (domestic markets
versus international markets) and transport costs
(capital and operating costs for some number of
*

Hess Indonesia

vessels to transport the product to market). Risks


are wide ranging and can be underappreciated when
making the investment decision. Technical risks
could include intermittent variability or long term
change of reservoir characteristics; ability to deliver
the floating production facilities on schedule;
variability in process performance (out of spec
products); safety (process or marine operations);
and maintainability (vessel or process equipment).
Commercial/contractual risks include issues with
product pricing variability; market economic
fluctuations (including implementation of take or
pay or cargo deferrals); and governmental or
regulatory changes in laws, regulations (including
Domestic Market Obligations), taxation; or cost
recovery.
LNG utilizes technology with significant onshore
facility experience and this experience has been
used to develop compact technologies applicable to
offshore applications. FLNG is being progressed
for several offshore developments, but has not yet
been operated offshore.
GTL has three processing options to produce
liquids: gas to methanol, gas to dimethyl ether
(DME), and gas to synthetic crude (syncrude).
Methanol and DME facilities have been extensively
operated onshore and this experience has helped
develop compact technologies for offshore
applications. Syncrude produced by the FischerTropsch process has a few large onshore facilities.
Reformer and reactor technologies have been
advanced in pilot facilities to improve suitability for
compact offshore applications. So far only one
GTL pilot facility is being readied for offshore
operations.
This paper will provide investment decision input
for the monetization of large remote deepwater gas
developments involving all these considerations.
INTRODUCTION
Large remote deepwater gas discoveries have
unique challenges with regard to becoming
commercial projects. Two options are floating

Liquefied Natural Gas (FLNG) and floating "Gas to


Liquids" (FGTL). These technologies include
several subsets that have specific advantages and
disadvantages depending on a range of investment
decision inputs which will determine which option
is appropriate for a particular development. Input to
these decisions will include governmental or
regulatory
requirements,
gas
reservoir
characteristics, facility issues, product pricing,
location of market(s), and risk.
MONETIZATION OPTIONS
Floating Liquefied Natural Gas (FLNG)
FLNG is currently the most applicable monetization
option for deepwater gas discoveries with large
production rates/reserves, long distance to markets,
and long term product pricing from international
gas markets. Variations on these three basic
assumptions would affect project economics and
likely influence the required transfer and redelivery
pricing contracts.
A nominal onshore LNG train of 4 million tonnes
per annum (MTA) could require a gas inlet rate of
up to 650 MMCFD (requiring reserves of 4.4 TCF
over 20 years).
(Assumptions:
Gas 1020
BTU/SCF, 10% fuel/losses, 340 days/yr production,
LNG 53.35 MMBTU/tonne.). Offshore FLNG
facilities (example in Figure 1) have been studied
by multiple contractor consortiums with train sizes
from 1 to 4.5 MTA, with a commonly assumed
midsize range of about 1.5 to 1.7 MTA which
would require gas inlet rates up to 256 to 290
MMSCFD (with corresponding required 20 year
reserves of 1.7 to 2 TCF). Larger FLNG projects
were announced by operators Shell, Inpex, and
Petrobras/BG in 2009 (Shell 2009, Inpex 2009, and
Petrobras 2009).
FLNG production and storage facilities require
large amounts of capital and long construction
schedules for constructing cryogenic process
facilities and storage tanks, contracting and building
specialty transport vessels and, at the other end of
the transport route, potentially permitting and
constructing regasification facilities. FLNG
technology has been significantly advanced in
recent years by specialist technology companies
partnering with marine engineering companies and
shipping companies to target independent upstream
E&P companies with so called stranded gas
reserves (Wood 2008). The technology for FLNG
is fairly complex and the engineering of process and
cryogenic systems for offshore applications has

been actively progressed. Significant technical


options now exist for FLNG (Kerbers 2009 and
Perez 2009).
FlexLNG have placed four orders for 1.7 MTA
capacity LNG FPSOs with main contractor
Samsung (FlexLNG 2009) and engineering
subcontractor Kanfa Aragon (Utkilen 2009). The
topsides process system selected was a dual-train
nitrogen expander cycle (Utkilen 2009) with
turndown to less than 25%, which mitigates some of
the process technical risks. SBM and Linde have
proposed a single multistage mixed refrigerant
system (LiMuM) for a 2.5 MTA (~365MMSCFD)
capacity LNG FPSO (Harland 2008). Hoegh LNG
has proposed CB&I technology for LNG
(Lummus/Randall
NicheLNG
with
dual
independent refrigerant (methane and nitrogen)
cycles) and Daewoo technology for the ship (Hasle
2009). Their proposed system is for a 1.6 MTA
capacity FPSO with 3 x 75MMSCFD trains, with
turndown to 70% (based on turboexpander
limitations), but only one train could be used which
results in 25% of peak processing capacity, so there
is a good range of process functionality. BW
Offshore has proposed Mustangs nitrogen
expander cycle (NDX-1) with four-trains (0.5 MTA
each) for a 2 MTA (~300MMSCFD) capacity FPSO
(Unum 2009). The turndown of their proposed
system is about 20-25% of peak processing
capacity.
Simple, safe processes (like the nitrogen expander
process) are attractive for offshore applications even
if they have somewhat higher power consumption
and lower thermal process efficiencies than more
complex processes.
Complex processes (like
multiple refrigeration loop and multi-refrigerant
processes) work well onshore where maintenance
and reliability assurance is able to be delivered at
lower cost. Offshore maintenance and reliability
assurance costs can be high and work can be
difficult to perform in a congested, marine
environment. Initial energy efficiency savings from
one type of process can be potentially offset by
maintenance and reliability costs including reduced
uptime from more complicated processes. It is also
important to select process equipment that has been
proved in marine environments (especially with
FPSO vessel motions) like gas turbine drivers on
the primary compressors, expander compressors
with magnetic bearings and light rotors, and brazed
aluminum heat exchangers and cold boxes (Walther
2008).
FlexLNG has reported contract costs for their first
FPSO vessel (hull+utilities) of ~US$460 million

(FlexLNG 2009) and topsides of ~US$200 million


+ integration costs (Utiliken 2009). Future similarly
sized LNG FPSOs could cost ~US$1-1.3 billion (in
line with FlexLNGs guidance of US$ 550-700
CAPEX per tonne of LNG annual capacity)
depending on specific reservoir fluids data and
project specific commercial and contracting
arrangements. BW Offshore has suggested a value
of US$550-800 CAPEX per tonne of LNG annual
capacity as an applicable budgetary number (Unum
2009).
Several major oil and gas companies are pursuing
FLNG technologies for large remote gas fields.
Shell announced a contract award to Samsung for a
3.5 MTA FLNG FPSO offshore Australia (Shell
2009). Inpex announced a 4.5 MTA FLNG FPSO
for the Masela (Abadi) Project offshore Indonesia
(Inpex 2009) and received preliminary Indonesian
Government approvals (Sasistiya 2009). Petronas
and BG Group announced FEED contracts for a 3
MTA FLNG FPSO offshore Santos Basin, Brazil
(Petronas 2009, SBM 2009, Technip 2009, and
Saipem 2009).
There may be economies of scale for large projects
to have a single large FLNG production host vessel,
but there is also the option to have multiple medium
sized FPSOs in large fields. Medium sized FPSOs
would be quicker to fabricate (using conventional
shipyard
infrastructure
and
slots)
and
commission; there could be a learning curve effect
when designing and fabricating (i.e. assembly line
with enough backlog); they would have a different
production risk profile; and they could allow phased
ramp-up and ramp-down of production capacity
based on staged field developments (including time
to drill deepwater production wells if required) or
reservoir performance (and allow re-allocation of
FPSOs to other developments if required). Multiple
medium sized FPSOs could allow simultaneous
offloadings of LNG to transport ships which might
reduce production downtime or operability risks
with a single large FLNG host production vessel.
Individual FPSO vessels could come into shipyards
for periodic classification surveys or equipment
modifications as required whilst other FLNG
vessels remained working in the field.
Larger sized FLNG vessels (nominal 450 meters
length by 70 meters beam) can have reduced pitch
and yaw motions compared to medium sized FLNG
vessels (nominal 336 meters length by 50 meters
beam), but roll responses may not be significantly
different (both beam dimensions are small
compared to wave lengths of significant beam seas).

Roll resonance periods can be similar for both


vessel sizes, so operability (process or offloading)
can be similar in seastates where the heading of the
vessels are towards wind-seas (i.e. weathervaning
on turrets) but where beam swell components
produce significant motions (after Ewans 2003).
Offloading systems would be determined by the
applicable operating location of the vessel for
moderate environments side by side offloading is
likely and for more severe environments tandem
offloading (with aerially supported hoses) is likely.
Both technical options are available from multiple
equipment suppliers to all FLNG consortiums.
Medium sized LNG FPSOs are more attractive
underwriting risks, so that hull and machinery
insurance should be available as opposed to much
larger special purpose vessels that might be difficult
to insure without substantial self-insurance cover.
Marine insurance markets (Marsh and Willis) have
estimated underwriting limits of about US$2.5
billion for a single vessel and process equipment.
Medium sized LNG FPSOs may be easier to lease
since they could more easily be redeployed than a
single large LNG FPSO which might not be a good
technical or commercial fit on other field
developments. For PSCs with cost recovery and
integrated upstream/downstream facilities, a
national regulator may be able to redeploy these
medium sized LNG FPSOs into other field
developments, including fields with reserve lives
below the threshold for field specific facilities.
So at this time, four (4) major contractor
consortiums including FlexLNG/Samsung/Kanfa
Aragon,SBM/Linde,Hoegh/CB&I(Lummus/Randall
), and BW Offshore/Mustang are proposing medium
sized LNG FPSOs for project developments.
Typical commercial terms would result in a return
on capital of about 11% in the case of lease options,
but alternate commercial and contracting methods
are available.
Almost 360 of the world LNG transport fleet of 400
vessels (existing plus current order book) are
vessels ranging from 125,000 m3 (~ 2.6 BCF) up to
260,000 m3 (~5.4 BCF). Delivery costs for a
157,000 m3 tanker were reported ~US$220-230
million (The Star Online 2008), but costs have
softened with a number of newbuild orders
postponed or cancelled in 2009. Typical vessel
transit speeds are in the range of 18-20 knots.
Charter costs nominally were in the region of
US$80,000/day plus fuel costs, port fees, insurance,
and overheads so assumed total daily LNG
transport
costs
can
be
approximately

US$100,000/day. Wood Mackenzie reported 2009


spot charter market rates were much lower due to
the financial crisis as low as US$25,000++/day
then back up to US$50,000++/day (Palti 2009), but
it is not recommended to use these lower rates for
longer term financial investment decisions.
Calculations on distance to market, production
rates, storage requirements, and other parameters
should be run to determine the number of transport
vessels needed for a particular LNG project and
from this number of ships, the effective cost per
MMBTU should be calculated. This transport cost
to various potential markets would affect the market
price required by sellers or offered by buyers
(depending on who ships the LNG). FOB (free-onboard) contracting versus DES (delivery ex-ship)
terms have varied widely, but in the Pacific markets
FOB has become more common, so the transport
costs are considered by the buyers when they offer
their pricing terms to the sellers.
Floating Gas to Liquids (FGTL)
Gas to liquids (GTL) has been a proven
technology for a long time and there are at least
three routes to liquids gas to methanol, gas to
DME, and gas to synthetic crude. FGTL is an
option being considered over the past few years, but
not yet monetized for actual major projects.
a. Methanol
A lower cost GTL option is to utilize gas to produce
methanol. This product is easily transported as
liquid in conventional chemical shuttle tankers to
markets. The storage pressure for methanol is
ambient. All gas components are utilized so there is
nothing leftover to be flared or reinjected usually
only a water effluent stream. Associated CO2 in the
production stream is actually beneficial to product
production.
A medium sized onshore methanol train of 1 million
tonnes per annum-(MTA) could require a gas inlet
rate of 105 MMCFD (requiring reserves of 710
BCF over 20 years) and would cost ~US$500
million. (Assumptions: Gas 1020 BTU/SCF, 10 %
fuel/losses, 340 days/yr production, Methanol 32
MMBTU/tonne.) Floating Methanol facilities have
been studied with train sizes from 0.4 to 4 MTA,
corresponding to required gas inlet rates of 42 to
420 MMSCFD (or 20 year reserves of 290 BCF to
2.9 TCF).
Coogee Chemicals / Mogal Marine-Mitsubishi
(Coogee and Figure 2) and PetroWorld/ Foster
Wheeler/ StarChem/ Waller Marine (Waller) have

been consortiums who have proposed and studied


Methanol FPSOs.
Coogee Chemicals has a
compact onshore plant in Australia that has been
producing methanol for almost 10 years. MEO
Australia (2008) is working a 4 MTA offshore
methanol development option (above a shallow
water shoal far from land, but the concept of remote
compact facilities is applicable).
For offshore production facilities, vessel motions
can be critical to operability of GTL process
equipment. Velocys (Tonkovich 2008) has
developed compact multiple microchannel plant for
the production of methanol onboard an FPSO. The
microchannels
reportedly
increase
process
efficiency and speed of flow, so that vessel motions
in marine conditions do not affect the contents of
process equipment by influencing liquid levels and
causing process upsets. In addition the process is
claimed to minimize fresh water requirements by
recycling and recovering water from the process
stream. Other proposed offshore methanol process
facility designs have been addressing the challenge
of FPSO motions on the fluids contained in process
vessels and columns.
Methanol is a marketable product sold as a
feedstock for further petrochemical processes like
the production of olefins.
There is a more
conventional market for methanol as a source of
chemical derivatives like formaldehyde, acetic acid,
methyl methacrylate (MMA), and Methy Tert-Butyl
Ether (MTBE), but it is not a market sufficiently
large to absorb significant additional supply without
impacting the unit price. As the market evolves to
utilize methanol as a fuel (Direct Methanol Fuel
Cell (DMFC)) or petrochemical feedstock
(Methanol to Olefins (MTO)) replacing higher
priced condensate pricing should be more robust
to the impact of greater volumes of methanol. The
MTO process would involve an intermediate step
where offshore methanol is converted onshore to
DME and then to olefins. Recent pricing for
methanol has been in the range of US$200/tonne
which is about US$7/MMBTU.
For many remote deepwater gas field applications,
methanol could be an attractive development
options with scalability (wide range of economic
production rates and reserves) and commercial
flexibility (ability to lease process facilities from
third parties and deliver high value BTU product
to relatively unconstrained liquids markets in
conventional FOB chemical shuttle tankers). This
development option might also be combined with
other development options based on the needs of a
particular field, country, or market (Figure 4).

b. Dimethyl Ether (DME)


A somewhat higher cost option (but also higher
revenue) is to utilize gas to produce DME. The
storage pressure for DME is 88.5 psig / 0.61 MPa
(@25degC) which is lower than pressurized LPG
(232 psig / 1.6 MPa). Cryogenic storage at -25degC
and ambient pressure is also an option (similar to
LPG). All gas components are utilized so there is
nothing leftover to be flared or reinjected usually
only a water effluent stream. Associated CO2 in the
production stream is actually beneficial to product
production.
As with all complex process systems, vessel
motions of the offshore production facilities can be
critical to operability of GTL process equipment.
Similar technical challenges and risks exist for
either methanol or DME offshore process facilities.
Methanol has been processed onshore (by
dehydration using catalysts) to produce DME.
Toyo Engineering (Mii 2005) has onshore plant
technology for a Jumbo DME plant which could
produce 3,500 TPD (1.2 MTA) (from 6,000 TPD (2
MTA) of methanol) and would require feed gas of
163 MMSCFD (corresponding to reserves of 1.4
TCF over 25 years) and could cost ~US$600
million. This technology is reportably able to be
utilized in a marine environment onboard FPSO
vessels and Toyo has a consortium with Velocys
and MODEC to pursue this option (Toyo 2007).
There is also a direct route from gas to DME which
is potentially applicable for offshore production
options. JFE (Ohno 2006) has developed a direct
synthesis route from methane to DME and built and
successfully operated a 100 TPD demonstration
plant for more than five years to advance the
technology. JFE (Ohno 2007) estimated that a
6,000 TPD (2 MTA) DME facility could require
feed gas of 225 MMSCFD (corresponding to
reserves of 1.6 TCF over 20 years) and could cost
~US$1 billion. A DME facility of this size would
have two trains, each train with two 1,500 TPD
DME reactors. Total and JFE have been studying
this plant size for a commercial onshore facility in
Qatar (Wood 2008).
No studies of offshore
applications have been reported, but other than the
normal marine project challenges (space constraints
and vessel motions), there appears to be no
unsolvable issues, so continued technology
development would be very attractive to deepwater
gas resource stakeholders.
A large offshore DME facility could supply 3-5% of
current and predicted near-term Asian demand for

DME. This demand is likely a "moving target"


since the market is predicted to grow significantly
as the advantages and benefits of DME continue to
be realized.
In addition to the olefins feedstock market, DME is
an attractive product as an LPG additive or
replacement; as an automotive fuel; or as a fuel for
power generation. For countries in SE Asia, the
LPG additive/replacement option may be
particularly attractive and DME can be mixed into
LPG in amounts up to 20% with minimal
modifications to existing infrastructure (Ohno
2007). DME has the advantage of being non-toxic
so it is safe to handle and transport. Some of
DMEs technical, commercial, and marketing
considerations are well covered by Ohno (2007). In
this reference, JFE presented some ideas of
predicted DME product market valuation based on
marketing work in Japan and China on a BTU
basis, the value of DME could be approximately
equal to crude product pricing which would be very
attractive (high value BTU product). DME recent
pricing has been in the range of US$370/tonne
which is about US$9/MMBTU.
With a few more years of technology development,
DME could become an attractive development
option with scalability (wide range of economic
production rates and reserves) and commercial
flexibility (ability to lease process facilities from
third parties and deliver high value BTU product to
relatively unconstrained liquids markets in
conventional FOB LPG shuttle tankers). This
development option might also be combined with
other development options based on the needs of a
particular field, country, or market (Figure 4).
c. Synthetic Crude
The most common usage of the term GTL is for the
production of synthetic crude, usually by the
Fischer-Tropsch (F-T) process. GTL is suitable for
projects with a range of production rates/reserves
and distances to markets, and should attract product
pricing from international clean hydrocarbon
markets. An example of a proposed GTL FPSOs is
shown in Figure 3.
GTL production process facilities are large and
complicated and therefore would require significant
amounts of capital and longer construction
schedules. Both FPSOs and transport vessels may
also have issues depending on the exact product
chemistry (i.e. if too much wax is produced, there
could be flow assurance issues). If the production
chemistry is focused on paraffinic hydrocarbons,

the resulting product is called synthetic crude or


syncrude, and conventional liquid storage and
transport vessels can be used. There have been
suggestions to eliminate additional product
upgrading (hydrocracking and fractionation)
offshore and just stop the process after some kind of
transportable liquid is produced, but this is likely
an economic decision based on CAPEX
requirements and product pricing. The need for
further onshore processing could constrain the
potential marketing of the offshore product and
therefore may not be attractive.
The technology for GTL is complex and the choice
of processes (syngas, reactor, catalysts, and product
upgrading/refining)
for
offshore
(compact)
applications has been progressed to implementation
on several pilot projects. Multiple proprietary F-T
technology applications have been in development
and used in both small and large onshore plants
(Apanel 2005, Hansen 2005, and Olsvik 2005), but
there are also non-F-T GTL technologies being
developed and tested (Gattis 2004).
The potential use of an oxygen plant (Air
Separation Unit (ASU) feeding oxygen into an Auto
Thermal Reformer (ATR) to produce the require
synthesis gas (syngas)) onboard an FPSO is a risk
decision based on proximity to hydrocarbon
facilities. Risks can be mitigated with actions on
facility layout, equipment spacing, fire and blast
walls, etc. ATR produces reusable heat for other
process systems.
Steam Methane Reformer (SMR) technology to
produce syngas has been developed and proposed
by Velocys/Toyo/Modec (Simmons 2008 and
Tonkovich September 2008) to eliminate the
offshore oxygen plant requirement. Using SMR
feeding syngas into microchannel process units is
designed to minimize water requirements and to
modularize the equipment, which would help with
space constraints onboard an FPSO. Pilot scale
testing has been ongoing to validate the technology.
Conventional SMRs have been used for some time
in onshore methanol plants. CompactGTL (CGTL)
is using an SMR for its offshore GTL pilot plant
application on a Petrobras FPSO, offshore Brazil.
The CGTL process uses a SMR to convert produced
gas to syngas which is then compressed and flowed
to a Fischer-Tropsch reactor (FTR) from which it
emerges as synthetic crude oil, water, and a residual
stream of hydrogen, carbon monoxide, and gas.
Both the CGTL SMR and FTR are microchannel
assemblies based on plate-and-fin heat exchanger
technology (Beckman 2009).

Other syngas production technologies called noncatalytic partial oxidation (POX), catalytic partial
oxidation (CPOX), heat exchange reforming (HER)
and compact reforming (CPR) have been
developed and tested for potential use (Apanel
2005). Major operating companies like Shell, BP,
and ConocoPhillips are pursuing these other syngas
technologies. Some of these technologies have
been studied for offshore applications.
The selection of reactor technologies is important
for space optimization (size of reactor vessels), risk
mitigation (reactor / process temperatures), catalyst
selection (life cycle costs), and GTL product
selection. One challenge is to correctly select the
process details to help minimize lighter
hydrocarbon production (C1 to C4) whilst not
making too much soft (C20-C34) and hard (C35+)
waxes (which would present flow assurance risks).
There may be a need to perform mild hydrocracking
of the wax fractions to increase diesel production
(which would help mitigate flow assurance risks)
(Apanel 2005).
Offshore GTL facilities have been estimated to cost
~30% more than onshore GTL facilities (Olsvik
2005). GTL is more capital intensive for the
process facilities compared to LNG, but is less
expensive in storage/transport (no cryogenic ships
with special insulated tanks) and redelivery (no
regasification facilities) costs.
In similar onshore studies (Rahman 2008 and
Economides 2005), GTL was compared with LNG
for the development of a 650 MMSCFD field
(required reserves of 4.4 TCF over 20 years):

GTL facilities would produce 65,000 BPD of


GTL products (Naptha 17,000 BPD, Diesel
44,000 BPD, and LPG 4,000 BPD). GTL
facility costs were estimated to be US$ 1.82
billion (@US$28,000/BPD of capacity in most
recent study).

LNG facilities would produce 4 MTA. LNG


facility costs were estimated to be US$ 800
million (@US$200/tonne/annum). Cost for
LNG ships (assuming ~10-12,000km route, so 6
ships of 135,000 m3 capacity at US$ 140
million/ship)
was
US$
840
million.
Regasification facilities were estimated at 30%
of liquefaction plant investment, or US$ 240
million. Total assumed investment for LNG
was US$ 1.88 billion.

Relative investment CAPEX costs were about


equal in these two studies. Note that, since

these studies, LNG process facilities costs have


risen significantly, but have likely been reduced
again as a result of recent economic conditions
costs of US$500-600/LNG tonne/annum
should be used for future economic
comparisons. GTL costs went up similarly, but
have recently started to reduce for the same
reasons.

OPEX costs were compared for production


facilities plus shipping costs and found to be
about equal between the two monetization
options. Shipping costs increase significantly
for longer distances to market for LNG
compared to GTL due to the high cost of LNG
transport ships (Pyrdol 2007).
Relative revenue streams were harder to
estimate, since both studies used older product
pricing, but using some of the assumptions in
both studies with current pricing, it appears that
the revenue stream from GTL should be
significantly higher than LNG. The concept of
high value BTUs applies for GTL products
and support for this hypothesis is contained in
Pyrdol (2007) and Reeve (2009).
Offshore applications would have different cost
allocations, but the same relative economics
should apply.

With a few more years of technology development,


FGTL should become an attractive development
option with scalability (wide range of economic
production rates and reserves) and commercial
flexibility (ability to lease process facilities from
third parties and deliver high value BTU product to
relatively unconstrained liquids markets in
conventional FOB shuttle tankers). This
development option might also be combined with
other development options based on the needs of a
particular field, country, or market (Figure 4).
INVESTMENT DECISION INPUTS
Investment decisions have to be made to select
which of the previously discussed options are
appropriate for a particular development. Input to
these decisions will include governmental or
regulatory
requirements,
gas
reservoir
characteristics, facility issues, product pricing,
location of market(s), and risks.
Government / Regulatory Requirements
a. Taxation (PSC or Concession)
The method of taxation and how investments and
any incentives are capitalized or recovered can

influence the investment decision the developer


will need to decide whether to capitalize or expense
some of the costs (i.e. build and own the FPSO
versus contract and lease the FPSO). Taxation may
also lead to decisions to partially monetize the gas
inside the PSC or Concession and monetize the rest
of the potential value externally i.e. produce and
sell (transportable) methanol offshore to a non-PSC
entity (at commercial market prices), then process
to DME onshore and sell to get remainder of market
value possible from the original gas feedstock.
b. Cost Recovery (PSC or Concession)
Large capital investment requirements of either
FLNG or FGTL investment decisions can lead to
complex and time-consuming approval processes by
regulators when considering multi-billion dollar
investments. The source of capital for these large
investments (financing, partnerships, tolling
arrangements, build-operate-transfer agreements,
etc.) can all be influenced by the cost recovery
procedures and regulations applicable for a
particular country or development.
c. Domestic Market Obligations (DMOs)
DMOs can require the developer to sell a certain
portion of the production to the domestic market of
a country, usually at some specified percentage of
the market price or at lower domestic prices.
Domestic market prices of gas can be very low,
whilst domestic market prices for methanol, DME,
or synfuel are typically more world market priced.
If no gas is actually produced on the floating
facilities in a transportable form, then the developer
will need to negotiate alternate arrangements with
the regulators. DMOs are also typically timerelated obligations, so that the developer may have
a specified initial period to maximize production
and revenue, which is not necessarily ideal for a
sustained plateau production profile (as in LNG
developments).
d. Procurement Rules (including local content)
High technology projects can be challenging to
achieve high percentages of local content depending
on the maturity of the technology. More recently
developed technologies may be limited to a few
international suppliers and may be difficult to
source in local markets. There may even be only
one international suppliers of certain technologies.
Complicated FPSO ship vessels or process
equipments/integrations
may
also
require
experienced shipyards located in other countries to
achieve the necessary economic inputs (costs and
delivery schedules) to ensure projects are viable to
all stakeholders.

quality of product (in specification or not) at a


range of process conditions); intrinsic safety of
process (i.e. Oxygen plant? Fired Heaters?
Rotating equipment?
Temperatures?); and
weight and footprint of process systems
including potential impact on vessel size for any
process changes. DME uses well proven
process technology and has been advanced
significantly over the past 5-10 years for
compact (offshore) applications. Carbon /
Thermal efficiencies of various processes range
from 92/88% LNG, 85/70% MeOH / DME, and
77/60% GTL (syncrude) (Patel 2005) with
considerable technical development work
ongoing to improve efficiencies of the three
GTL processes these efficiencies obviously
affect economics, but the relative MMBTU
pricings more than offset the variances in these
numbers at 2010 pricing levels.

Gas Reservoir Characteristics


a. Reserves
Duration of Production, Production Profiles, and
shape of Production Profiles (rapid ramp up and
then longer decline down (normal oil and gas
projects as well as GTL projects since products sold
into open market) versus ramp up with subsequent
sustained plateau) are significant reserves issues
that can affect investment decisions.
b. Presence of oil / condensate
Liquid hydrocarbons like oil (in separate reservoir
horizons or as an oil rim) or condensate (usually
associated) can provide useful economic support to
development decisions for the gas resource. The
amounts would affect the floating vessel production
and storage requirements.
c. Gas composition (C1-C6+, water, mercury,
H2S, CO2,etc.)
The richness of the gas (high amounts of C3 and
C4 for example) can provide another economic
benefit to development decisions (adding a LPG
development option). The presence of unwanted
components (such as water, mercury, H2S, or CO2)
can lead to higher costs (and more space
requirements on the floating facilities) to process
them out of the market product stream (for technical
or commercial reasons).

Metocean Constraints (that affect host


facilitys ability to receive production, or to
process fluids without upsets inside columns or
other process equipment, or to offload products
to shuttle vessels) including Waves / Swells /
Currents / Winds could affect the process
selection (or costs to mitigate these constraints)
based on site conditions.

Safety issues including (a) Equipment layout


and spacing (fire, blast, leak, spill
considerations);
(b)
Product
storage
(temperatures
(cryogenic,
exothermic),
sloshing, flow assurance); (c) Vessel operations
in proximity to FPSO (crew/supply, shuttle
vessels, offloading); and (d) HSE (hazards for
operational personnel). DME biodegrades in
soil and water, is non-carcinogenic, nonmutagenic, and virtually non-toxic. DME can
be stored and transported in the same facilities
as LPG.

Project Schedules availability (startup dates,


time to ramp up to full design rates, operational
uptime, and varying well rate flexibilities) can
affect economic returns and therefore process
selection.

Constructability (newbuild or conversion)


FLNG FPSOs will likely be newbuilds due to
safety considerations (simultaneous operations)
but FGTL FPSOs could possibly be conversions
depending on the process design basis. The
choice of newbuild versus conversion could
have an impact on the project delivery
schedules.

Facility Issues
a. Technical

Number or size of floating facilities for


production, storage, offloading, and transport
floating facilities have less opportunity for
economies of scale (compared with onshore
projects) only limited ability to add additional
process facilities on FPSO host vessels normally have to add additional FPSO vessels.
LNG allows the transport of large volumes of
gas over long distances. Individual LNG
transport vessels can carry up to ~6 BCF.
Offloading facilities are more complex, but they
can be used to feed remote domestic gas
markets including power and fertilizer plants
(depending on economics and pricing). More
MMBTUs can be shipped as GTL products in
the same sized transport vessel compared to
LNG products.
Process Risks (reliability or safety) including
efficiency of process (conversion rates and

Operability Being able to be operable at a


range of reservoir conditions and rates and
metocean conditions will have significant
impact on production uptime and therefore
economics. The selected process and product
options need to be designed to be as robust as
possible to give maximum operational
performance. Prior to delivery from a shipyard,
full quayside performance (acceptance) testing
is possible to demonstrate operability at a range
of production rates prior to delivery to the
remote deepwater site location.

Maintenance including multiple process trains


with isolation; ability to store/ handle/ service/
replace critical equipment or components; and
storage and handling of Process Chemicals
(including flow assurance, corrosion, process
catalysts

b. Commercial / Contractual

Capital Requirements and Timing - The nature


of the exported product (gas or liquid) affects
the type of sales agreements able to be
negotiated, which in turn will affect the
financing ability of a development (i.e. long
term take or pay LNG contracts with clear
pricing adjustment formulas (including floors)
could facilitate bank financing).

Purchase or Lease - floating production


facilities can be redeployed on other projects in
other locations so they are more feasible to be
leased from third parties. Leased facilities are
likely to be more generic for a range of
potential field conditions and may be available
sooner based on engineering have been already
completed and shipyard slots already booked.
Constraints
of
cost
recovery
or
procurement/contracting
procedures
may
impact the ability to select this option.

Product pricing
a. Selecting the Market
The concept of constrained markets is important in
the product decision typically a significant LNG
investment decision would need a long term market
contract with high international LNG pricing, whilst
GTL syncrude would be sold into more open
liquids markets with multiple redelivery options
and linkage to international product pricing. There
is much more competition for long-term LNG
market contracts and LNG markets are relatively

smaller than the markets for liquids, so it would be


easier to access better product pricing for GTL
product contracts, even spot market contracts.
Potential LNG supply from currently proposed SE
Asia projects has been reported to exceed forecast
Asian LNG demand by 57% (Sethuraman 2009), so
this could affect LNG markets and pricing and
possibly future product selection decisions.
Onshore storage for LNG redeliveries is very
expensive and limited economic market
conditions in 2009 led to several spot market
deliveries of LNG to North America markets solely
based on the ability to store LNG in existing
facilities in spite of low spot market prices. The
economic deterioration of spot LNG markets in
2009 has also shown that commercially risked
decisions might accelerate development of GTL
technologies to allow the selection of GTL
production and export options targeted for the less
constrained and broader liquids markets.
Methanol redeliveries can be stored in
commercially available third party chemical storage
facilities. Methanol pricing is well defined and long
term contracts are possible. DME redeliveries can
use existing onshore LPG infrastructure. DME is
fungible in Propane, Diesel and Natural Gas
Markets and therefore long term or spot contracts
are available. DME as a partial blending
replacement for LPG has clear domestic and
international markets. GTL redeliveries can use
existing liquid hydrocarbon (oil, condensate, fuels,
and refined products) infrastructure. The market
pull of clean hydrocarbons may provide pricing
advantages. Redeliveries of GTL products are
easily accommodated in onshore storage facilities
which are readily available and cheap compared to
onshore LNG storage facilities. Patel (2005),
Pyrdol (2007) and Reeve (2009) detail the concept
of GTL products being more valuable on a
MMBTU basis than LNG. GTL products are high
value BTU products and can be more valuable than
LNG on an MMBTU basis. Relative values
between the three GTL products (methanol, DME,
or syncrude) vary according to the assumed
feedstock cost in current markets DME is a more
economic choice (Lee 2009).
b. Pricing Adjustments
Product pricing fluctuations (including transfer
pricing (if applicable), product price formulas, price
floors, spot/long term contracts, and the ability or
not to revise pricing formulas as the markets
change). Long-term LNG Contract pricing issues
(Culotta 2008 and Eng 2008) could affect ongoing
development economics. Without price floors,

investment decisions may be risked and high capital


options may be penalized. LNG can offer reduced
exposure to pricing risk downside with long term
contracts that have price floors. LNG pricing
formulas are well defined (Eng 2008) and
contractual methodology exists to revise pricing
periodically (Culotta 2008).
c. Take or Pay
The ability to defer or cancel shipments, with or
without commercial payments or future rate
commitments in long term contracts can affect
economics especially if no other substitute market is
readily accessible. Curtailment of some LNG
redeliveries to Taiwan, Korea, and Japan in 2009
and the lack of a robust alternative spot market led
to gas production reductions at several international
LNG process facilities thereby affecting economics.
Cost Comparisons
Various charts have been produced over the past
few years (one example in Wood GPA 2008) to
show production rates and distances to markets that
favor certain products and process technologies.
All of these charts have had a general story that
high rates and short distances favor pipelines, whilst
high rates and longer distances favor LNG. These
charts can only tell part of the story, so manual
evaluation on a case by case basis is required to
help determine the best production and export
option choice. Usually not addressed on these
charts are the relative economics of different
product pricing on an MMBTU basis and how this
could vary and should be risked. Location specific
details like PSC/Concession contractual and
commercial requirements including Domestic
Market Obligations, cost recovery, transfer pricing
(where applicable), and tax considerations are also
not usually addressed and they can fundamentally
change the monetization decision. In the case of
large production rates, the facility size may become
an issue for safety risked decisions which could
influence the choice of product and process
technology.
Work on GTL has narrowed the relative economics
of GTL versus LNG for long distances. LNG may
eventually be considered as a bounded option.
GTL may eventually be shown both below (lower
rates for the same distance) and to the right
(longer distances for same production rates) than
gas market options. Maximizing high value BTUs
for a given production rate and distance to market at
the same time as minimizing CAPEX and OPEX

costs should allow the correct monetization


decisions to be made.
CONCLUSIONS
FLNG is clearly the most ready monetization option
at this time. Actual FLNG designs and projects
have been progressed within the industry and
shipyard slots are being booked.
Multiple
technology partners and contractor consortiums
have made and are ready to make firm, lump sum
(or lease) turnkey proposals for potential projects.
Continued technological development should allow
FGTL to become a more feasible monetization
option with the pull of high value BTU products.
Multiple and varied risks and advantages associated
with each development option, FLNG and FGTL,
can significantly influence choice selection as
shown in this paper. Deepwater LNG or GTL
FPSOs may have a perception of operability risk
(either reduced uptime affecting reliability of
deliveries or process issues leading to reduced
product quality) that could lead buyers to offer
lower market pricing contracts for the products and
this will need to be addressed by developers to get
the best economic results whichever choice is made.
For large remote deepwater gas fields there may be
development scenarios with multiple FPSOs, as
shown in Figure 4, to handle different parts of the
value chain and allow multiple products (FLNG and
FGTL) to be produced and marketed to optimize the
economic returns for the field reserves.
ACKNOWLEDGEMENTS
The authors would like to express appreciation to
Hess Corporation for permission to make this
presentation. Any opinions, conclusions, or
recommendations expressed in this paper are those
of the authors and do not necessarily reflect the
views of Hess.
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Figure 1 LNG FPSO (FlexLNG)

Figure 2 Methanol FPSO (Coogee)

Figure 3 GTL FPSO (Syntroleum Bluewater)

Figure 4 Multi-FPSO Integrated Field Development

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