With one FLNG conversion project up and running in Africa since 2018 and another due online by year’s end, Golar LNG has its sights set on future growth with three new designs
Propelled by Golar LNG’s prospects in floating LNG (FLNG), Fearnleys Securities is bullish on the share price of the NASDAQ-listed firm, given the current global thirst for new liquefaction capacity.
Over the last three years, little new liquefaction production has come on the global market, and Fearnleys Securities is upbeat on the cash generated by Golar LNG’s FLNG Hilli Episeyo in operation off Kribi, Cameroon, and the potential of its new FLNG Gimi, due for commissioning in 2023. Adding to its appeal, the Bermuda-based firm has about US$1.4Bn in cash and listed securities.
Conversion of the FLNG Gimi at Keppel Shipyard in Singapore is making good progress and is now about 90% complete, says the company, with deployment set in Q4 2023 for the Greater Tortue Ahmeyim project offshore on the maritime border of Senegal/Mauritania. A converted Moss-type carrier, Gimi will use Black & Veatch’s PRICO liquefaction technology, the same as in Hilli Episeyo. LNG produced by Gimi will be lifted by BP under a 20-year contract.
At its Astrup Fearnley Shipping & Energy Conference on 18 January, Fearnleys Securities analysts issued a ‘buy’ recommendation on Golar LNG’s stock, with the share price expected to rise from current levels of about US$22.67 to about US$35 per share.
“You have three key cost inputs: source gas; liquefaction costs; and shipping distance”
Keppel Offshore & Marine’s conversion of Golar LNG’s FLNG Hilli Episeyo has served as a proof of concept since it began operating 2018 “as a quick and cost-efficient solution for monetising stranded gas reserves” says Golar LNG. Built in 1975, Hilli Episeyo, with a capacity of 2.4 mta, is chartered to Perenco Cameroon.
Liquefaction capacity at premium
Prospects for the conversion of the FLNG Gimi dimmed in February 2020 when BP declared a force majeure because of Covid, delaying the project for a year. This all now seems in the distant past. Once commissioned and delivered in Q4 2023, FLNG Gimi is expected to unlock around US$3Bn of earnings backlog to Golar, equivalent to US$151M in annual adjusted EBITDA, according to the company. Fearnleys Securities notes a “proven willingness to pay for liquefaction capacity is yet to be reflected in the GLNG share price.”
Golar LNG owns a 70% stake (and Keppel the remaining 30%) in Gimi, which will have a capacity of 2.45 mta once commissioned. Cost of the conversion, not including financing, is projected at US$1.3Bn.
With its Gimi conversion moving towards the home stretch, Golar has its sights set on its next FLNG project. Golar LNG owns the 1977-built Golar Gandria, a potential FLNG conversion candidate.
What’s next?
During its Q3 2022 earnings conference call in mid-November, company chief executive Karl Fredrik Staubo gave a preview of what is next for Golar. He said current efforts are on FLNG growth projects, underpinned by three newly developed FLNG designs. “All three designs are based on the same proven liquefaction technology and maritime interface, but defer in liquefaction capacity,” which range from 2.5M to 5M tons of LNG.
Mr Staubo said Golar LNG has placed orders for long-lead items for a new Mark II FLNG design with a total liquefaction capacity of 3.5M tons. These long-lead items — representing an investment of US$300M — comprise compressors, gas turbines, cold boxes and heat recovery steam generators, positioning Golar to deliver an FLNG during 2025. Additionally, Golar has engaged with engineers and a shipyard. “Securing attractive delivery of our next FLNG unit will increase Golar’s ability to drive value with prospective FLNG clients,” he said.
“Our capex per ton is cheaper than the competition - both maritime and land-based liquefaction solutions”
According to Mr Staubo, Golar has signed two FLNG development agreements, one with a supermajor and another with an independent E&P company. He said under these agreements, “both parties commit to deliver a defined scope of work within set deadlines to progress potential new FLNG opportunities and agree on key steps to reach FIDs.”
In assessing his company’s prospects, Mr Staubo contrasted recent sales of floating and onshore liquefaction production facilities to the costs of Golar’s FLNG projects. He noted Exmar sold its FLNG Tango, which is a 0.6 mta liquefaction unit, for a price ranging between US$572M and US$694M, depending on its performance. “This implies a price of around a US$1Bn per ton of liquefaction capacity. In September, Kinder Morgan sold 25.5% of its Elba Liquefaction plant, also at an implied value of close to a US$1Bn per ton. “This compares to the capex per ton that we have guided on of between US$500 to US$600 per ton. So, we see that the attractiveness from charters, but also from people looking to acquire liquefaction assets, are valuing near-term cash flows, which is further giving support and confidence to why we have placed the long-lead items,” he concluded.
African FLNG projects
Africa FLNG projects are very much at the heart of Golar’s investments. Mr Staubo ticked off three key reasons for this strategy.
Mr Staubo said: “When you do an FLNG project, you have three key cost inputs: source gas; liquefaction costs; and shipping distance to end users. We believe we can source African gas reserves at around US$1 to US$2 per mmbtu versus current, and we have prices of US$6. So, 65% of new liquefaction projects have a cost of two to four times our input costs from the outset. We think we’re advantaged. As alluded to, our capex per ton is cheaper than the competition, both maritime and land-based liquefaction solutions. And West Africa happens to be closer to end users, both in Europe and Asia. And if you have a business model with three key call centers, and you’re lower on all three, we think that’s a good competitive advantage from the outset.”
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