Jul. 26–The long-anticipated “second wave” of liquefied natural gas projects is here as tsunami of final investments decisions get made and construction contracts awarded, executives and analysts said.
With construction of export terminals sanctioned during the first wave nearing completion, a second round of large LNG export projects are planned from the Texas Gulf Coast to Africa to the Arctic Circle. A joint venture between Exxon Mobil made a final investment decision in February on the $10 billion Golden Pass LNG export terminal in the southeast corner of Texas. The Woodlands oil and gas company Anadarko reached a final investment in June for the its $20 billion offshore Mozambique LNG project in southeast Africa.
Earlier this week, Russian natural gas company Novatek awarded a $7.6 billion construction contract to oilfield service company TechnipFMC to build the Arctic LNG 2 export terminal on the Gydan Peninsula of Siberia. The Arctic Circle project follows a contract Anadarko awared to TechnipFMC for the offshore work as part of the Mozambique LNG project.
Those contracts helped TechnipFMC, which has headquarters in Houston, London and Paris, break company records for new orders. Executives said the contracts were proof that LNG’s second wave was underway.
“Over the last 18 months, there has been considerable market focus on the LNG wave,” TechnipFMC CEO Doug Pferdehirt said during a Thursday call with investors. “The LNG market growth continues to be underpinned by the structural shift towards natural gas as an energy transition fuel helping to meet the increasing demand for energy while lowering greenhouse gases.”
Industry observers agree. A recent report from global energy research firm Wood Mackenzie estimates that the industry will invest more than $200 billion on LNG projects between 2019 and 2025. But challenges remain. Among them: cost overruons.
The LNG industry is notorious for running behind schedule and over budget. Only 10 percent of all LNG projects have been completed under budget, while 60 percent have experienced delays.
“The many projects jostling for final investment decision right now have low headline costs, but in light of the historical reality of LNG construction, some project delays are likely,” said Liam Kelleher, senior global LNG analyst at Wood Mackenzie.
Although many of its competitors build LNG plants from the ground up and entirely on site in a process known in the industry as “stick building,” Pferdehirt said TechnipFMC would use large-scale fabrication of modular components that can be shipped and easily assembled in harsh environments such as Siberia, where the company previously built the Yamal LNG export terminal Novatek using the same approach.
“Many of the LNG projects that are being considered today are still stick built, they are not modularized,” Pferdehirt said. “There is increasing activity in the fabrication yards. Because of the success that we had — not only on Yamal LNG — but on other subsea and onshore/offshore projects where we focused on modularization, I think we have — we have demonstrated experience and we have very good relationships with those yards.”
In a recent report, James West, an analyst with the investment banking advisory firm Evercore ISI, estimated that nearly two-thirds of the costs of building an LNG plant come from construction and equipment, p;roviding business opportunities for oilfield services companies. Athough the coming build out is expected to benefit many firms in the sector, West believes that Baker Hughes of Houston TechnipFMC and Chart Industries of Georgia will benefit from the second wave more than their peers.
Using a fabrication yard in Italy, Baker Hughes makes modular and emissions-reducing turbines that can be shipped to LNG plants being built around the world and easily connected to other equipment. Chart Industries makes equipment widely used by the industry to convert natural gas to a liquid while TechnipFMC is regarded as a top engineering, procurement and construction company.
West said the market is underestimated the impact that TechnipFMC is having in the development of LNG projects.
“The company is driving structural change in both operator efficiencies and cost structure as well as commercial change to how operators develop reserves both onshore and offshore,” West said. “We expect momentum to continue to build in the coming quarters as orders increase for a third straight year, led by major LNG and subsea project bookings.”
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