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Støhle bets US$300 million a throw on FSRU demand

Wed 07 Jun 2017 by Karen Thomas

Støhle bets US$300 million a throw on FSRU demand
Sveinung Støhle: "We expect four to six new FSRU projects a year"

Höegh LNG is one of the few shipowners to order new tonnage in the last year, to meet demand for floating storage and regasification units (FSRUs). President Sveinung Støhle explains why he always keeps one card in hand

Norway-based Höegh LNG is racing US-based Excelerate Energy to order new floating storage and regasification units (FSRUs) that will unlock new import demand for chilled gas.

At the time of writing, Excelerate had yet to confirm a firm order this year, despite having signed a letter of intent in February for up to seven FSRUs, as it seeks ways to underwrite its expansion.

Höegh, meanwhile, is already back at the shipyards. As of May, it had six FSRUs on the water and four on order. It ordered its ninth and tenth FSRUs in January: one at South Korea-based Hyundai Heavy Industries (HHI), the other at Samsung Heavy Industries (SHI). “And we have three options at each of these shipyards,” Mr Støhle says.

HHI will deliver the ninth vessel to the Höegh fleet at the end of this year. Hull 2909 is chartered to Pakistan-based Global Energy Infrastructure (GEIL), becoming the third FSRU based at Karachi’s Port Qasim.

Höegh’s seventh FSRU, the HHI-built Hull 2552, now named Hoegh Giant, is fixed to Tema LNG in Ghana from next summer, becoming the first FSRU moored off sub-saharan Africa. The eighth is chartered to Chile’s Penco Lirquen from next spring.

The tenth FSRU, at 170,000m³ built to Höegh’s standard size, is unfixed. This element of speculation is what separates Höegh from the rest of the pack: it keeps one FSRU free always, its secret weapon in new tenders.

The element of speculation is what separates Höegh from the rest of the pack: it keeps one FSRU free always, its secret weapon in new tenders

With interest in FSRUs now at fever pitch, that strategy has paid off. Of five FSRU contracts awarded last year Höegh landed two.

As other players circle the market, considering when to play their hand, Mr Støhle has laid his money on the table. “If we have learned anything over the years, it’s that if you don’t take a position – take some risks and put some skin in the game – you are not in this market,” he says.

Five FSRU newbuildings will be delivered this year, to Höegh, BW LNG and Golar LNG, and to FSRU newcomers Mitsui OSK and Gazprom. Maran Gas, perhaps LNG’s most opportunist shipowner, entered the FSRU market in December. It has ordered a 173,400m³ vessel from Daewoo Shipbuilding & Marine Engineering (DSME) for delivery by summer 2020.

Other shipowners planning to target FSRUs are GasLog, Teekay LNG and Dynagas. For all the interest in FSRUs, Mr Støhle says new rivals may struggle to gain a foothold. “I have yet to see a single FSRU contract go to a player that places the order after the fact,” he says.

“It might happen in the future, as the market grows. As of now, it has not. Our approach has been different. Our risk is US$300 million every time we place an order.

“Our business model works because we can show the client that we deliver, within the time they need and to the specification they need. Timing is always important. Will other companies, like GasLog, come in? Yes, maybe. After all, the market keeps growing. And that’s good.”

Convert

Given its reputation as a buyer of newbuildings, Höegh took the market by surprise last summer when it announced a partnership with Wärtsilä and Moss Maritime to convert LNG carriers into FSRUs, seeking to cut by six months its vessel-completion dates.

Höegh said then that converting allowed it to pitch for projects starting in late 2017-2018. Ten months on, the company had yet to announce any conversions. And Mr Støhle takes issue with any suggestion of a change of tack.

“Höegh LNG’s strategy has not changed,” he says. “We believe that building new FSRUs is the best solution because you get the latest technology, efficiency and size. It’s always better to build new because an FSRU is an FSRU – it’s not an LNG carrier.

“We can undertake a conversion if that is necessary. At Höegh LNG, we design our FSRUs, not the shipyard – particularly when it comes to the regasification system, which we designed in partnership with Wärtsilä. That system can fit on a newbuilding or on a conversion. Whichever option, it will be the same regas plant.”

“We have also put in offers to some projects based on conversion – our competition will also offer that – but we always offer the option of a newbuilding as well”

Höegh runs a tight ship, ordering in advance its FSRUs’ regasification equipment to cut lead times. “Our strategy is to order on a continuous basis and to have open at least one FSRU under construction,” Mr Støhle says.

“So up to this point we have seen little value in that reduction in construction time. We have also put in offers to some projects based on conversion – our competition will also offer that – but we always offer the option of a newbuilding as well. We leave it to our clients to decide what they want.”

And what FSRU charterers generally want, he says, is large, efficient vessels that support a send-out capacity of 750 mscf/d. Converted older vessels are less able to deliver this.

Market growth

When he last spoke to LNG World Shipping 18 months ago, Mr Støhle expected FSRU demand to increase by three to four new projects a year. Last year brought six new ventures and – interviewed this spring at Gastech – he expects this higher growth to continue.

“The LNG market is growing very quickly; there’s a huge drive by all the major sellers to open up new markets,” he says. “We have a market of very long supply and very low prices. New importers want to come in and take a position.”

“We are expecting four to six new projects a year. We won’t win them all. Last year, we won two and our objective this year is to win two again.

This spring, Höegh was shortlisted for 10 new projects, concentrated in emerging markets, in South America, Asia and Africa. However, it has also set its sights on the UK and Australia.

In March, speaking during a row over Australia’s looming gas shortages in the south and east of the country, Mr Støhle described Australia, the world’s second-largest LNG exporter, as “top of the opportunity list” to import LNG.

Höegh is talking to Australia about supplying an FSRU, Mr Støhle confirms. It could do so “within months”, if need be.

“Politics aside, as a businessman I see an opportunity here, with the increase in LNG exports from this region and with the increase in local demand,” he says. “Two or three years ago, we were looking at prospects for shipping gas from the North West Shelf to the main demand centres along Australia’s south and east coast.

“The distances are huge, making it too expensive to build new pipelines. [The southeastern state of] Victoria has its own gas pipelines. We suggested shipping LNG around the continent, into Adelaide or Sydney. But at that time, the price of gas was too high.

“At today’s prices, it is possible to take LNG from the North West Shelf or from Indonesia or Malaysia and to deliver it to eastern Australia at a price equal to or lower than the existing local gas coming through the pipelines.

“That supports the business case for putting in an FSRU and for opening these demand centres to the world market for natural gas. LNG is natural gas. It doesn’t matter where it comes from – if it’s priced on a competitive basis.”

New ventures

In the UK, Höegh LNG is the preferred FSRU supplier to the Meridian LNG project, if the scheme in Barrow-in-Furness in the north west of the country goes ahead. Meridian has until year-end to close its 2 mta offtake agreement with US-based Magnolia LNG.

“LNG exports from the US will have a huge impact on the short-term energy market,” Mr Støhle says. “There are no destination clauses; the gas can go anywhere – and it will go anywhere.

“With time, a portion of that will end up in Europe, and in the UK. Cheniere has already sold LNG to Portugal, Spain and Greece. This is happening. That will require more import facilities… Certain people already own the capacity in the UK’s three existing terminals and if you’re not already part of that club, you need to find another way in.”

Höegh has FSRU designs up to 265,000m³, a size designated H-max. Höegh’s standard-size 170,000m³ vessels deliver as much as 3.75 mta.

However, FSRU growth is concentrated in the world’s emerging markets. Höegh’s challenge is to tap new buyers that want cheap gas, in smaller volumes and on more flexible terms.

Mr Støhle plans to venture down stream, into small-scale LNG distribution, for domestic or industrial use. There are opportunities for LNG distribution using smaller FSRUs in Indonesia, the Caribbean and Europe, he says.

Höegh has set up a team to design and identify demand for 10,000m³-30,000m³ newbuilding FSRUs, that supply 30-100 mscf/d. These are as likely to be barges as full-sized FSRUs, he says.

Höegh sees its Lithuania-based FSRU Independence as an early business model. The 170,000m³ vessel is chartered to Klaipedos Nafta to meet Lithuania’s domestic demand. It also supplies LNG in parcels of up to 15,000m³ to Coral Energy for delivery across Scandinavia.

From next year, Independence will also supply LNG to the 7,500m³ bunker-supply ship that Bernhard Schulte Shipmanagement has ordered from Hyundai Mipo to deliver gas as marine fuel to ports across the Baltic. Höegh’s FSRU fleet can also bunker LNG-fuelled ships.

“We have not yet decided to get into this market,” Mr Støhle concludes. “Developing a new market segment takes time, resources and money. The question for Höegh is, can we obtain a similar return on investment from these small FSRUs to the returns we make on our 170,000m³ FSRUs?”

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