IBP1061_19

FLNG AS AN OPTION TO
MONETIZING THE NATURAL GAS FROM
PRE-SALT IN BRAZIL
Cláudia M. C. Bonelli1, Marcelo F. Alfradique2,
Rafael R. Ferreira3 e Gabriel F. Costa4
Copyright 2019, Brazilian Petroleum, Gas and Biofuels Institute - IBP
This Technical Paper was prepared for presentation at the Rio Pipeline Conference and Exhibition 2019, held
between 03 and 05 of September, in Rio de Janeiro. This Technical Paper was selected for presentation by the
Technical Committee of the event according to the information contained in the final paper submitted by the
author(s). The organizers are not supposed to translate or correct the submitted papers. The material as it is
presented, does not necessarily represent Brazilian Petroleum, Gas and Biofuels Institute’ opinion, or that of its
Members or Representatives. Authors consent to the publication of this Technical Paper in the Rio Pipeline
Conference and Exhibition 2019.

Abstract

A steady increase in domestic pre-salt natural gas production is expected in the next 10 years,
influenced mainly by the success achieved in exploration in this environment. Such reserves
are usually located in areas far from the coast, which has aroused interest in their monetization
through different technologies, such as offshore natural gas liquefaction. In this context,
Floating Liquefied Natural Gas (FLNG) technology has become increasingly important, both
in terms of the potential for reducing the cost of capital and environmental impact, as well as
in relation to minimization of the gas injection. This technology consists of an autonomous
offshore unit without the need for additional infrastructure, allowing a reduction of the
development phase of field production. The FLNG in Brazil would be an alternative to take
advantage of the pre-salt natural gas production, also bringing the flexibility of the LNG. In this
way, it would allow the natural gas demand to be met through LNG transportation to the
regasification terminals in Brazil. In case of excess volume, it would be possible to export to
the international LNG market. Thus, this work aims at evaluating a monetization model through
FLNG, which has been studied in several countries. It was possible to estimate that the
alternative FLNG would allow paying about US$ 6.90/MMBtu for the treated natural gas before
the liquefaction step. In this case, an FLNG project would be economically feasible and could
even be more advantageous than the pipeline flow, especially for fields with considerable
distance from the coast.

Keywords: Natural Gas. Pre-Salt. LNG. FLNG.

1. Introduction

The natural gas reserves of the pre-salt province have some unusual characteristics in
relation to the conventional fields, such as great distances of the coast (approximately between
250 and 300 km), water depths that can exceed 2,000 m and high gas-oil ratio (GOR) (IBP,
2017).
In addition to the forecast of the increase in the share of domestic production in this
region, high rates of pre-salt gas injection are also considered, totalizing 49.8% of the gross
______________________________
1
DSc. Chemical Engineer – Empresa de Pesquisa Energética (EPE)
2
DSc. Chemical Engineer – Empresa de Pesquisa Energética (EPE)
3
Trainee – Empresa de Pesquisa Energética (EPE)
4
Chemical Engineer – Empresa de Pesquisa Energética (EPE)
 Rio Pipeline Conference and Exhibition 2019

production coming from this exploratory environment, which will be 143 MMm³/day in 2027,
according to PDE 2027 (EPE, 2018a). It is worth mentioning that this injection occurs due to
the increase of the oil recovery, as well as processing difficulties related to CO2 content.
Traditionally, offshore gas production platforms export the natural gas produced
through pipelines to the coast, being processed in natural gas processing plants on land and
integrated into the existing transmission pipelines. Such an approach is usually more attractive
and economically feasible when the gas fields are located at a reasonable distance from the
coast and the existing transmission grid, which is not the case for the pre-salt natural gas
reserves. Thus, several alternatives have been proposed for their monetization, including
offshore natural gas liquefaction technology or FLNG (Floating Liquefied Natural Gas).
An FLNG unit consists of a vessel with natural gas treatment and liquefaction facilities
as well as storage for LNG. To maintain the unit positioned at the natural gas production site,
different anchorage systems are used, including turret mooring system, which allows the vessel
to rotate around a fixed part. The turret is also combined with a fluid transfer system, which
receives natural gas production from the wells via risers. Subsequently, the natural gas is
subjected to the following steps on the topside: three-phase separation, removal of contaminants
(CO2, H2S and residual moisture, among others), fractionation for liquids extraction and
liquefaction. Then, the LNG produced is then stored in the hull and subsequently transferred to
ships via offloading equipment for sale to the market through different monetization models
(ARONSSON, 2012).
FLNG projects require significant capital investment, and although the concept of
offshore liquefaction has already been known for decades, only three units are operational or
commissioned to date, and a number of facilities are being designed, built and scheduled for
entry in operation in the next few years (SONGHURST, 2018). This work aims at evaluating
the pre-salt gas monetization model through FLNG technology, which has been studied in
several countries and can be applied in Brazil, allowing the reduction of the pre-salt gas
injection and the gas flaring.

2. Methodology

The present work was divided in two parts: the first one presents an analysis of the
investment costs of FLNG facilities in operation and under construction in the world, while the
second one deals with the case study concerning the economic feasibility evaluation of an
FLNG installation for monetization of pre-salt natural gas.

2.1. Investment Costs

CAPEX (Capital Expenditure) of an FLNG facility can be divided into two components:
liquefaction / vessel costs and upstream costs (SONGHURST, 2018). Table 1 shows the
characteristics, the liquefaction / vessel CAPEX and the total CAPEX of the main FLNG
projects in operation and under construction in the world.
There are currently two plants in operation: PFLNG Satu (1.2 mtpa capacity) and Hilli
Episeyo1 (2.4 mtpa capacity), installed in Asia (Malaysia) and Africa (Cameroon), respectively,
as well as the Prelude Project (3.6 mtpa capacity), still under test, anchored in Oceania
(Australia). Among the projects scheduled for operation are projects in Africa (Fortuna and
Coral South), Asia (PFLNG 2) and South America (Tango FLNG). The average cost of
1
The Golar Nanook FSRU was supplied with a LNG cargo by FLNG Golar Hilli Episeyo in February 2019 and
arrived in March 2019 at Sergipe, where it will offer natural gas to the thermalpower plant Porto de Sergipe I,
which is being implemented by Electric Center of Sergipe (CELSE) in Barra dos Coqueiros (Sinaval, 2019).
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liquefaction and vessel (which also includes LNG storage) of the projects represents
approximately 60-80% of the total CAPEX, while the upstream cost includes subsea facilities
and surface treatment facilities for natural gas2 (SONGHURST, 2018).

Table 1. Characteristics and CAPEX of the main FLNG projects in the world

Liquefaction/ Total
Capacity
Project Localization Vessel Capex Capex Status
(mtpa)3
(US$bn) (US$bn)
PFLNG Satu Malaysia 1.2 1.2 1.5 In operation (2017)
Hilli Episeyo Cameroon 2.4 1.4 1.9 In operation (2018)
Prelude Australia 3.6 7.2 12 Under test
Tango FLNG Argentina 0.5 0.3 0.4 Scheduled to 2019
PFLNG 2 Malaysia 1.5 1.5 1.7 Scheduled to 2020
Equatorial
Fortuna 2.2 1.5 2.0 Scheduled to 2020
Guinea
Coral South Mozambique 3.4 4.3 7.7 Scheduled to 2022

Source: EPE, based on SONGHURST (2018), WORLD MARITIME NEWS (2018), COMPELO ENERGY
(2018), OPHIR ENERGY (2017) e SCOTT (2018).

It is possible to notice that the percentage of the CAPEX of the liquefaction / vessel of
the Coral South project is lower than the others (56%), due to the higher upstream cost required
for deepwater production.
One can also observe the total CAPEX diversity of FLNG plants, which indicates that
there are different variables involved in the project costs of this size. Figure 1 shows the unit
cost of these investments in US$ / tpa, which provides a comparative overview of these projects.
4000 Prelude , 2019
Plant, operation start year
3500 US$ / or operation forecast year
tpa 3333
3000
Plant CAPEX ($ / tpa)

2500
2265
2000
Coral South, 2022
PFLNG Satu, 2017
Petronas PFLNG2, 2020
1500
1250 Hilli Episeyo, 2018
1133
1000
909
800 792
500 Caribbean/Tango FLNG, Fortuna, 2022
2019
0
0 0,5 1 1,5 2 2,5 3 3,5 4 4,5
Capacity (mtpa)
Figure 1. Total unit cost of FLNG plants, in US$ / tpa
Source: EPE, based on SONGHURST (2018), WORLD MARITIME NEWS (2018), COMPELO ENERGY
(2018), OPHIR ENERGY (2017) and SCOTT (2018).

2
It consists of three-phase separation, removal of contaminants (CO2 and H2S, among others) and fractionation
for liquids extraction
3
Million tons per annum of LNG
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It can be noticed the low unit CAPEX of the Caribbean/Tango FLNG (US$ 800 / tpa),
which is characterized by a small barge with a capacity of 0.5 mtpa of LNG, compared to the
unit CAPEX of the Prelude project (US$ 3333/ tpa), much larger and more complex. Prelude
FLNG will be capable of producing and storing 3.6 mtpa of LNG, in addition to 1.3 mtpa of
condensate and 0.4 mtpa of LPG and it is in the test phase (SCOTT, 2018). It is interesting to
note that both FLNG projects cited will operate on shallow water depth, under mild conditions.
On the other hand, the Coral South facility, with a capacity of 3.4 mtpa, will operate in a 2000
m water depth region, using specific equipments and controls, resulting in a high unit CAPEX
of this project, of US$ 2265 / tpa (COMPELO, 2018; SCOTT, 2018).
PFLNG Satu pioneer installation presents a high unit cost (US$ 1250 / tpa) when
compared to the others, with a processing capacity between 0.5 and 2.5 mpta, which can be
explained by the difficulties and costs embedded in an unprecedented technological project.
Another variable to be considered is the external financing obtained, generally reduces the unit
cost of the FLNG facilities. This is the case of Hilli Episeyo obtained funding for the conversion
of the ship (ADOKOU, 2018, SONGHURST, 2018, SCOTT, 2018).

2.2. Case Study

Figure 2 shows the pre-salt gas monetization model using FLNG technology, where the
scenario studied was based on offshore liquefaction from the production of natural gas from a
hypothetical field, located in the southeast region of the country at a distance of approximately
250 km of the coast, in water depth of 2000 m. This distance is an estimated average value for
the Pre-Salt fields in the Santos Basin, near the coast of São Paulo.

Onshore Offshore

Existing gas pipeline

network Natural Gas
Thermalpower Plant

LNG-fuelled truck

FSRU
LNG to
ssLNG LNG Carrier
internacional
Terminal market

ssLNG Ship

Hypothetical
LNG-fuelled ship pre-salt field
FLNG

Figure 2. Monetization alternatives via FLNG - Case Study

Source: EPE.

It can be observed that in the Figure there are basically three alternatives of monetization
of produced LNG via FLNG. In the first case, the produced LNG would then be transported via

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LNG carrier vessel to a floating storage and regasification unit (FSRU), installed on the
Brazilian coast, offering regasified natural gas to meet the demand, mainly through supply of
natural gas thermalpower plants or interconnection to the existing natural gas pipeline network.
In the second case, LNG would be transported by ssLNG (small-scale LNG) ships to an ssLNG
terminal, which could offer LNG cargo services to LNG-fuelled trucks and LNG-fuelled ships.
In the third case, LNG could also be exported to the international market by ship in case of
excess volume.
In the case study, the economic feasibility of an FLNG project with an estimated
duration of 30 years was evaluated, 3 of which were construction (SONGHURST, 2016) and
27 of operation. In this step, the minimum price of treated natural gas prior to the liquefaction
step was estimated, in US$ / MMBtu. This price could be an internal transfer price of the natural
gas stream between the fractionation module and the E&P company's liquefaction module that
will implement the FLNG installation on its own platform or else the selling price to another
company. This benchmark for price analysis was chosen due to the fact that the activities prior
to it (from the production of natural gas in the well to the fractionation) are common among the
various offshore natural gas monetization alternatives. The subsequent activities vary according
to the chosen alternative.
In Figure 3, this analysis is shown in view of the various possibilities for pre-salt gas
monetization, including the FLNG model, which consists of offshore liquefaction for
production of LNG.

Figure 3. Diagram of monetization alternatives for pre-salt natural gas

Source: EPE.

The technical and economic assumptions adopted in the case study are described below:

i. Capacity of FLNG installation liquefaction plant

The capacity of the liquefaction plant of the FLNG plant was estimated at 1.5 mtpa of
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LNG, corresponding to the approximate production of the pre-salt fields, which produce an
average of 5.57 million m3/day of associated natural gas (EPE, 2019).

ii. CAPEX and OPEX liquefaction of the FLNG installation

The South FLNG Coral project was chosen as the reference for calculating the CAPEX
of the case study installation, which will be operated on a water depth similar to that found in
the Brazilian pre-salt regions and which has a liquefaction / vessel CAPEX of 4.3 US $ bn
(SCOTT, 2018). The CAPEX of the liquefaction of the Coral South project was estimated as
US $ 1.8 bn, following the discount of US $ 2.5 bn (THOMAS, 2017).
In order to estimate the cost of liquefaction of the FLNG pre-salt project based on the
cost of liquefaction and the capacity of the Coral South project, a scale factor correction was
quoted in EPE (2018) according to equation below:
    
 
 
CostFLNG = CostCoral South ∗     ℎ 
 

The scale factor used was 0.65, the same used for chemical installations in GTL (gas to
liquids) projects (GLEBOVA, 2013). As a result, the liquefaction CAPEX of the FLNG facility
was 1.06 US $ bn.
Regarding operating costs, SONGHURST (2016) indicates that a FLNG facility with
CAPEX of US $ 1.5 bn has an estimated liquefaction / vessel OPEX of US$ 159 mi per year,
which corresponds to 10.6% of CAPEX, which was used as a premise in the case study. It is
worth mentioning that this percentage would be valid for both liquefaction and vessel, although
it may vary according to the characteristics of the project.

iii. Taxes and fees

For the cash flow, weighted average cost of capital (WACC) of 10% per year, IRPJ
(Income Tax) of 25% and CSLL (Social Contribution on Net Income) of 9% were considered.
The results obtained do not include ICMS (Taxes on the Circulation of Goods and Services),
PIS (Social Integration Programs) / COFINS (Contribution for Social Security Financing) and
ISS (Services Tax).

3. Results and Discussion

As mentioned earlier, a FLNG project with a capacity of 1.5 mtpa was considered, using
total CAPEX values of US$ 1.06 bn and annual OPEX percentage of 10.6%. The total project
duration was 30 years, with a construction phase of 3 years, with expenditures of 30%, 40%
and 30% in the first, second and third years, respectively.
With all the information already mentioned, the discounted cash flow of the FLNG case
study was determined using a tool developed in the EPE, SATIL (Terminal and Liquefaction
Facilities Evaluation System). Figure 4 shows the annual cash flow discounted for the case
study.
From this, the natural gas break-even price was estimated so that the FLNG project
would make the Net Present Value (NPV) equal to zero, considering the established WACC.
Thus, the study made it possible to estimate a maximum price of treated natural gas of US$
6.90 / MMBtu for the alternative to be feasible under these conditions. It is observed that this
price is compatible with the break-even price estimates for the Brazilian pre-salt natural gas
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150

Discounted Cash Flow (US$ mi)

100
50
0
-50
-100
-150
-200
-250
-300
-350
-400
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30
Operation Year

Figure 4. Discounted cash flow from the FLNG project - Case Study
Source: EPE.

with CO2 content between 0 and 30%, which can vary in the range of US$ 2.00 to US$ 7.00 /
MMBtu for most cases, even after outflow to land and processing in natural gas processing
plants, with sale of liquids (EPE, 2019). Considering that the case study of the FLNG project
uses only natural gas treated on the platform (without the need of outflow and processing), it is
observed that there would be several fields with CO2 contents of up to 30% whose natural gas
break-even would be below US$ 6.90 / MMBtu, thus making the FLNG strategy economically
feasible.
Given this context, it is economically possible for the FLNG to act as a hub to supply
LNG regasification terminals on the Brazilian coast, allowing the monetization of pre-salt gas
in the national market through different alternatives, such as the supply of natural gas thermal
power plants or the interconnection up to the existing gas pipeline network, in addition to the
ssLNG alternative. It is worth noting the dependence of LNG terminal projects on the natural
gas thermal power plants, which usually anchor these projects.
As already mentioned, FLNG technology is an alternative for monetization of offshore
gas fields far from the coast, in a scenario of production development with few wells and in
which a gas pipeline is often economically unfeasible. Another advantage is the confidence in
the construction schedule and the investment cost when compared to traditional onshore LNG
plants. The timing of these plants can often be longer than expected due to local labor problems,
the construction of all necessary infrastructure or the delay of environmental licensing, for
example (SONGHURST, 2016).
On the other hand, a challenge related to the FLNG technology in the pre-salt would be
its adaptation to the hostile environment of deep waters where these fields are located, with
more severe meteo-oceanographic conditions. Product containment and transfer systems need
to withstand the effects of winds and ocean waves. Besides that, the efficiency of treatment and
liquefaction plants should be taken into account. Figure 5 shows a map containing the wave
regime around the world, showing the different wave heights (STORMSURF, 2019) where
Prelude FLNG (in test phase), Coral South FLNG (scheduled to 2022), Hilli Episeyo FLNG (in
operation) and Brazilian FLNG pre-salt projects are located.
It can be observed that environmental wave regimes of Prelude, Coral South and Hilli
Episeyo projects are less pronounced than in the case of the pre-salt FLNG project, even in the
case of Coral South, located at a water depth of 2000 m.
Therefore, the technical and economic viability of an FLNG project depends on factors
such as the cost of the installation and mainly the adaptation to the pre-salt maritime
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Figure 5. World map of wave regime with FLNG project location

Source: EPE, based on STORMSURF (2019).

environment, which represents a technical challenge to be faced in implementing this

technology. In this case, more detailed studies would be needed to adapt the project and verify
the increase of the cost related to this factor.

4. Conclusions

It is important to recognize that there are several variables that affect the cost of a FLNG
facility project, such as LNG storage capacity, whether or not external funding exists, and the
environment in which the facility will be anchored. Therefore, there are trade-offs between cost
and functionality, capacity, reliability and efficiency of the process.
The case study carried out demonstrated the economic feasibility of an FLNG project
of a hypothetical field of natural gas in the pre-salt environment of Brazil at a distance of
approximately 250 km from the coast in a water depth of 2000 m. A maximum treated natural
gas price of US$ 6.90 / MMBtu was estimated so that the FLNG alternative in the pre-salt
environment would be viable. This price is compatible with the break-even price estimates for
the Brazilian pre-salt natural gas with CO2 content between 0 and 30%, which can vary in the
range of US$ 2.00 to US$ 7.00 / MMBtu for most cases, even after outflow to land and
processing in natural gas processing plants, with sale of liquids. Considering that the case study
of the FLNG project uses only natural gas treated on the platform (without the need for outflow
and processing), it is observed that there would be several fields with CO2 contents of up to
30% whose natural gas break-even would be below US$ 6.90 / MMBtu, thus making the FLNG
strategy economically feasible. It should be noted that the estimates of CAPEX and OPEX used
in the study were based on literary sources and may vary considerably given the specificities of
the projects. Given the specificities of the projects, the estimates can range between negative
20% to 50% and positive 30% to 100% related to the reference case, according to AACE
(American Association of Cost Engineers). In addition, the natural gas commercialization
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strategies may be particular to each specific project, making estimates sensitive to several
parameters that were not considered in the present study.
It is suggested that the FLNG technology could allow the monetization of pre-salt gas
in the national market through different alternatives, such as the supply of natural gas thermal
power plants or the interconnection to existing pipeline network or the use of LNG as fuel for
ships or trucks. However, the application of FLNG in pre-salt area needs to be further studied,
mostly due to the more severe meteo-oceanographic conditions and the limitation of non-
sheltered marine areas to the design and the operability of an FLNG unit.

5. References

ADOKOU, B.; DAS, A., Financing FLNG Facilities - What Lies Ahead?, Westwood Energy,
Society of Petroleum Engineers, may 2018
ARONSSON, E., FLNG compared to LNG carriers. MSc. Thesis. Gothenburg, Sweden:
Chalmers University of Technology, 2012.
COMPELO ENERGY, Coral South FLNG Project, 2018.
DUNCAN, A., Focus on FLNG. Gaffney, Cline & Associates, 2015.
EPE, Empresa de Pesquisa Energética, Plano Decenal de Expansão de Energia 2027, 2018a.
EPE, Empresa de Pesquisa Energética, Compilação de Correlações de Custos de Equipamentos
- Instalações Industriais de Gás Natural, 2018b.
EPE, Empresa de Pesquisa Energética, Informe - Custos de Gás Natural no Pré-Sal Brasileiro,
2019.
GLEBOVA, O., Gas to Liquids: Historical Development and Future Prospects. The Oxford
Institute for Energy Studies, 2013.
IBP, Gás do pré-sal: oportunidades, desafios e perspectivas. Ciclo de Debates sobre Petróleo
e Economia, 2017.
OPHIR ENERGY, Fortuna FLNG Factsheet, 2017.
SCOTT, J., FLNG conversions cost-competitive with onshore projects, Oil&Gas Journal, v.
116, n. 7, 2018.
SINAVAL. FSRU da Golar inicia operações em Sergipe, 2019.
SONGHURST, B., Floating liquefaction (FLNG): potential for wider development, The
Oxford Institute for Energy Studies, 2016.
SONGHURST, B., LNG plant cost reduction 2014-18, The Oxford Institute for Energy Studies,
2016.
STORMSURF, Wavewatch III Wavemodel - Global - Regional - Local Wave Models, 2019
THOMAS, K., ENI approves Mozambique Coral FLNG Project, LNG World Shipping, 2017
WORLD MARITIME NEWS, Exmar´s Caribbean FLNG to export 1st LNG from Argentina,
2018.