Offshore gas industry is set for change and with it, the fortunes of the governments, companies and consumers connected to it. The harbinger of change is the floating liquefied natural gas (FLNG) vessel, a technology that will allow producers to commercialise offshore gas deposits without pipelines and onshore infrastructure. A ship comes along, taps gas, cools it, and offloads it to a tanker, sending it on its way to world markets. It’s that easy, at least in theory.

Unlike the now well-established receiving (regasification) floating LNG vessels, liquefaction ships have yet-to-be commercially tested. At present several shipyards and oil companies are competing to bring the first one on-stream by the middle of the decade, with the charge led by Royal Dutch Shell and its South Korean contractor Samsung. The test ground for FLNGs looks set to be Australia’s northern coast, but the principal virtue of the technology is its logistical flexibility.

What are other benefits of FLNG versus the standard onshore liquefaction projects?

• No need for costly, environmentally damaging and high-maintenance processing facilities.
• Ability to access smaller, remote fields that would otherwise be commercially unfeasible.
• No strings to land mean less contact with governments. In developed countries this means less red tape; in emerging countries it means fewer back-door dealings. Out of sight is out of mind.
• Much smaller chance of disruption due to terrorist attacks, activist protests or labour disputes.

This opens up opportunities for more gas production in practically every region. In South East Asia, smaller deposits could be tapped to supply a network of mid-scale receiving terminals among the archipelagos. West Africa’s large offshore gas potential could be harnessed without the need to price in the risk of terrorist attacks and corrupt local officials. North American waters could be developed with a much smaller environmental footprint.

More specifically who will benefit?

• South Korea’s high-tech ship yards.
• LNG traders such as Golar and Shell.
• Specialised gas producers like Woodside and BG.

Who will lose out?

• In the medium term, the governments of poor but gas-rich coastal states.

FLNG ships eliminate the need for onshore developments, meaning host states will not benefit from the massive inflows of FDI that accompany onshore terminals. Jobs will not be created, roads not built, and kickbacks reduced. It is important to keep in mind just how crucial an LNG plant can be for a small country. The PNG LNG terminal being built by ExxonMobil in Papua New Guinea, for example, is set to double the country’s GDP. No wonder East Timor is up in arms over Woodside’s decision to scrap a terminal in Timor and develop the Sunrise fields through FLNG.

Longer term, however, FLNGs will commercialise plenty of fields that would otherwise be untouched, meaning more gross royalties for the treasuries. Ultimately, FLNG is a win-win technology for the producers, host governments (ie states that own the deposits), and consumers benefiting from greater supply.