Why the FSRU market may not be as ‘sold out’ as it appears

By Andrew Buckland, Maritime Strategies International

‘BW Singapore’ FSRU
‘BW Singapore’ FSRU (photo: BW Group)

Geopolitics has sent demand on divergent paths, but capacity can be secured if you search a little harder, writes Andrew Buckland, Senior Gas Shipping Analyst, Maritime Strategies International.

A year ago, the market for Floating Storage and Regasification Units (FSRUs) was suffering from over capacity. Over a quarter of the fleet were trading as conventional LNG carriers and potential FSRU projects were often being delayed or cancelled. The invasion of Ukraine and Europe’s subsequent decision to wean itself off pipeline Russian gas has transformed the sector.

FSRU deployment (illustration: MSI)
FSRU deployment (illustration: MSI)

Turnaround
Most of the FSRUs that were trading are still trading, but now most of them have future employment as a regas terminal secured. Since the invasion, European customers have secured 10 FSRUs plus an FRU barge. Germany has secured five FSRUs, Italy three, Finland one and the Netherlands one plus the FRU barge.

Two S&P deals by Snam of Italy demonstrated the extraordinary prices that FSRUs can fetch under current geopolitical conditions. A USD 350 million deal for the 2015-built, 170,000 CuM, Golar Tundra in May was followed by a USD 400 million deal for the same age and sized BW Singapore in early July. Whilst newbuilding costs in the LNG carrier sector have risen rapidly in the last year or so (from USD 185 million to USD 245 million for conventional 174,000 CuM ship) the price is at least a third higher than an equivalent newbuild FSRU.

Whilst getting rapid access to regasification capacity to replace Russian pipeline gas and keep the home fires burning this winter can justify the prices being paid; the second deal is for an FSRU that will not become operational until 2024. On that timescale, in theory several old conventional LNG carriers could be bought and converted for a similar price.

Other countries including Germany have gone down the chartering route with time charter rates rumoured to be around USD 200,000/day – almost twice the level prevalent a year ago.

FSRU employment and utilisation (illustration: MSI)
FSRU employment and utilisation (illustration: MSI)

Beyond Europe
Whilst Europe is gobbling up all available FSRU capacity, potential FSRU projects elsewhere in the world are struggling to make progress. High gas prices have destroyed the economics of importing gas for many countries and the newly inflated cost of buying or hiring an FSRU has eroded some of their cost advantage over conventional land-based terminals.

The recent deals have seen “sold out” signs going up for the FSRU sector. But dig a little deeper or shake the tree harder and FSRUs can still be found. Not all the currently employed FSRUs are highly utilised, in fact some are barely used at all.

FSRUs in the Middle East and Argentina are mainly used seasonally (Middle East summer and Southern hemisphere winter) and could be made available to Europe in the winter. In South America, some FSRUs are only required to replace hydro power generation during droughts and can be little used for several years when the rains return.

Some FSRUs are also nearing the end of contracts and could find themselves going to a higher bidder.

‘Golar Tundra’ FSRU
‘Golar Tundra’ FSRU (photo: Golar LNG Limited)

Conversion option
The conversion route would normally see a timescale of around 2 years from project inception to delivery but in some cases, this can be shortened if some long lead-time equipment is already in place. New Fortress Energy for example claim it can convert one of its two conventional LNG ships in 9-12 months. By contrast a newbuild ordered now would be lucky to get a 2025 delivery date at a South Korean yard.

The conversion route is made even more attractive by the upcoming CII and EEXI IMO regulations. These may make trading older LNG ships in the fleet economically more difficult by forcing them to reduce speed to comply with the regulations. A stationary FSRU will not be troubled by the new rules and under current conditions stands to make far higher earnings.

Andrew Buckland, Senior Gas Shipping Analyst, Maritime Strategies InternationalAndrew Buckland has over 25 years of gas shipping research and consultancy experience. At MSI he is responsible for maintaining and developing the LNG and LPG sector market reports, data, and models. He previously worked at Wood Mackenzie and at Drewry Shipping Consultants. He has also worked as an independent Shipping consultant; primarily involved in gas shipping research and consultancy but also worked on tanker, petrochemical, chemical and dry bulk shipping projects. Buckland holds a MSc (Econ) in Strategic Studies and a BA in Geography from Aberystwyth University.