Floating LNG: quicker imports, less stranded assets

The discovery of three big leaks this week in the Nord Stream gas pipelines near Denmark has put neighbouring countries in the Baltic Sea in a flap about the security of gas supply in this area. That makes liquefied natural gas imports to Europe more important.

Europe needs to replace lost Russian gas. Not every country on the continent has sufficient infrastructure to import the LNG sent from the US, Qatar and elsewhere. The snappily named floating storage and regasification units offer countries a cheaper, flexible solution to importing liquefied gas.

Relatively quickly, these vessels — refitted from LNG tankers — can anchor up, connect to the local gas network and turn imported frozen gas into piped methane. Moreover, building an onshore regasification plant can cost $10bn compared with the roughly $500mn new-build cost for an FSRU.

Since the Ukraine war, countries such as Germany, which has no onshore LNG terminals, have scrambled to lease available vessels. Germany plans to charter three vessels for this winter. The Netherlands expects gas to flow soon through two FSRUs recently arrived at the port of Eemshaven, where a new floating terminal sits relatively close to the north-western border with Germany.

Owners of the vessels have seen demand jump. The market value of US-listed New Fortress Energy has more than doubled this year to $11bn. But as the supply of available FSRUs is small and diminishing, some shipbuilders should benefit from new orders. South Korea’s Hyundai Heavy Industries has led the way, having built 13 FSRUs as of this spring.

These relatively small vessels have two redeeming features. They are quick to set up and can later be repurposed back into LNG tankers or for other types of commodities. Even better, they present less of a threat of becoming stranded assets. These should have an economic life of roughly a decade, as compared to onshore LNG terminals, which can have lives lasting decades.

Given their flexibility, expect a steady demand for FSRUs for another few years.