Golar LNG aims to wrap up a long-awaited deal as quickly as possible to boost utilisation of its floating liquefied natural gas vessel off Cameroon.

The New York-listed company is also seriously considering acquiring upstream gas assets on which it can deploy an FLNG vessel, to benefit from direct exposure to buoyant gas prices.

Golar’s Hilli Episeyo has been running at only half capacity since coming online in November 2017 at Perenco’s Sanaga gas field in Cameroon. Plans to fully utilise its four trains have been hampered by regulatory and upstream issues, as well as low gas prices.

‘Advanced discussion’

New chief executive Karl Fredrik Staubo told analysts late last week that the 2.4 million tonnes per annum Hilli Episeyo could be handling extra gas in the first quarter of 2022.

“We are in advanced discussion for additional production anticipated to start up in [the] first quarter of next year," he said.

“We’ve been extremely keen to increase utilisation for Hilli since she was delivered. For a period of time, we had a non-cooperative gas price. Then there were certain regulatory challenges in terms of a gas production cap that needed to be resolved. And then lastly, it's a commercial agreement between the various parties.”

Staubo said regulatory agreements have been ratified that remove production caps, while confidence has increased on additional gas feedstock, and the forecast for LNG prices is promising.

‘Money to be made on all sides’

“We are very confident we will find a solution [because] the primary driver is that there’s money to be made on all sides of the table — us, Perenco, the gas off-taker and the local government. With current gas prices, there's sufficient economic [incentives] for everyone.”

Nevertheless, harking back to previous goals on expanding the vessel’s utilisation that failed to transpire, Staubo cautioned: “As we’ve learned over time, nothing is done until it’s done. But we remain very optimistic and ... believe we’re closer than ever in having a resolution in the not-too-distant future.”

“It’s a matter of getting ... another signature or two on the agreement and then we’re done.”

This agreement would bring the third of the Hilli Episeyo’s four liquefaction trains into permanent use, or, as Staubo explained: “We’re flat out on trains one and two and we’re talking about partial utilisation of train three.”

Golar’s contract with Perenco expires in July 2026 and it has no plans to seek an extension unless all four trains on the Hilli Episeyo are used.

Full capacity or no deal

“We are not interested in extending that contract until we can get paid for the full capex,” Staubo said.

“We’ve invested in four trains and are currently utilising two. So, if we were to discuss an extension, it needs to be for the full capacity, or at least we need to be paid for the full capacity of the unit.”

Golar would look to deploy the Hilli Episeyo on another gas field if Perenco’s contract comes to an end in five years.

“Getting the vessel back in 2026 could fit very well if we were able to acquire a gas field where we could deploy the ship. It’s certainly attractive for us to produce our own gas reserves,” said the chief executive, adding that “we’re looking at associated and stranded gas fields”.

This is the idea behind the company’s integrated gas strategy, whereby it will invest — most likely with a partner — in an upstream gas asset and an FLNG vessel to gain access to the gas price upside.

It is an approach Golar pursued unsuccessfully some years back when it linked up with Schlumberger to take equity in and develop the Fortuna gas field off Equatorial Guinea.

Although that deal fell through for a number of reasons — including unsupportive gas prices — Staubo reckons a partnering is still on the cards.

“We definitely see the advantage of teaming up with someone who’s got upstream capabilities. We most likely would target an area where we will have a partner upstream, but we’re [also] looking into a few different alternatives.”

He said Golar could be involved in assets where gas is being flared or reinjected.

‘Peanuts’

Essentially, Staubo believes Golar will make more money from direct exposure to gas prices compared with the charter-and-tolling model contract it has with Perenco.

“If someone is willing to charter something from you, they must make money on [the deal]. We make good money on tolling and we will continue to do tolling projects where we see returns as sufficiently attractive.

“But if you just look at current gas prices and the profits made by the people chartering from us, what we make is almost peanuts compared to what they make. We think it could be very attractive if we were able to produce gas for our own account, or at least take part in arbitrage.”

Supporting this bullish view on the LNG sector, Staubo pointed out that an FLNG vessel-based project could deliver gas to market at a price of around $5.4 per million British thermal units, compared with the current Japan Korea Market price — a key indicator for delivery into Asia — of $10 per MMBtu.

“The risk reward coupled with gas forward prices is what drives both increased interest from majors for our FLNG tolling arrangements as well as Golar’s desire to revert our focus on an integrated upstream model where we can capture more of the gas upside,” he added.

LNG

‘Confident of solution’: New Golar LNG boss bullish on fresh Cameroon deal