Key considerations and risks for developers

Key considerations and risks for developers

Floating LNG project proponents need to consider what they need to get right—and which risks they have to manage. We are at the early stages of identifying key success factors and lessons learned and—failure in one of the early projects could deter new developers, worry financiers and host governments and set the technology back years.

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While floating liquefaction is a relatively new technology, it should not present any excessive technical challenges. A number of issues, however, should be considered, such as a specialized LNG containment system, building new risk registers, and cyber security.

Cost and project management

Cost reduction is one of the key reasons to choose floating LNG.
  • Standardization can save costs, but systems cannot be perfectly standard, which may limit the redeployment of vessels.
  • Costs may fall significantly with experience.
  • Supply chain management may be simpler than for onshore projects, but requires integrating work from multiple locations.
  • Capital costs can be lower than traditional projects, but operating costs may be higher and there may be increased operational challenges offshore.

Financing, legal, tax and regulation

Project finance will only be readily available once FLNG has proved its viability. And, companies will need to work closely with finance providers to understand what they need to see to establish the technical reliability and bankability of their project and reduce the risk premium attached to project lending and EPC contracts.

Further, the status of FLNG plants may raise complicated questions for taxation, cost and price allocation and transfer pricing in a federal system e.g. Australia or Brazil. Cross-border LNG projects complicate these issues further. Early engagement therefore is vital to FLNG project success, such as with the E&P regulator of the host country, tax authorities, shipping certification bodies, and others.

"Potential FLNG developers will be closely watching the first few projects. If these go smoothly, with no serious budget over-runs, delays or technical problems, other companies will gain confidence."

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