By Dan Murtaugh and James Paton

(Bloomberg) — It’s longer than three soccer fields, heavier than two plane carriers and highly effective sufficient to sit back fuel into liquid colder than the floor of Jupiter.

And its maiden voyage couldn’t have come at a worse time.

The world’s first fashionable vessel for producing liquefied pure fuel was ordered by Petroliam Nasional Bhd in 2012 when LNG traded for greater than $15 per million British thermal models. It was launched final month, with costs down by about two-thirds. Royal Dutch Shell Plc faces the same downside with its model of a floating LNG plant, which might be bigger than any ship ever constructed.

“At $15 and above you can do anything, so everyone went and did everything,” stated Trevor Sikorski, a pure fuel analyst for Energy Aspects Ltd. in London. “Now all these projects start to come online at the same time, and all of a sudden you have all this supply and now your margins are next to nothing.”

The plight of the PFLNG Satu, as the primary vessel is understood, displays the bigger battle going through all producers. Projects permitted years in the past when vitality costs have been excessive are coming on-line now, including to a worldwide provide glut that has pushed spot LNG right down to $4.62 per million Btu this week.

PHOTOS: World’s First Floating LNG Facility PFLNG Satu Leaves DSME

Annual LNG demand is forecast to extend by 140 billion cubic meters (5 trillion cubic ft) from 2015 by 2021, which isn’t sufficient to soak up nearly 190 billion cubic meters of latest capability slated to grow to be operational, the International Energy Agency stated in its Medium-Term Gas Market Report 2016 revealed Wednesday.

“LNG projects take four to five years to get delivered,” stated Prasanth Kakaraparth, Wood Mackenzie Ltd.’s LNG provide analyst for Southeast Asia. “By the very nature of these long delivery periods, they get hit quite a bit by these commodity cycles.”

Petronas, Malaysia’s state-owned vitality firm, is betting the cycles will even out over the long term. PFLNG Satu will produce about 1.2 million tonnes of LNG yearly for the following 20 years from the Kanowit fuel discipline, which is situated about 180 kilometers (112 miles) north of the coast of Borneo.

“We are taking a long-term view for this project,” Petronas stated in a written assertion. “In terms of profitability, the project is still viable as an additional supply point within our larger portfolio of LNG assets.”

Some Advantages

Floating LNG has some benefits over land-based liquefaction, Rafael McDonald, the Cambridge, Massachusetts-based world director of fuel and LNG for IHS Inc. It eliminates the necessity for pipelines to attach far-flung fields to shore. Companies additionally hope that they’ll higher management prices in a shipyard than on a distant development web site, he stated.

Putting manufacturing on the water isn’t a brand new thought within the LNG world. In truth, it’s the unique thought. The first plant to sit back pure fuel for transport was mounted on a barge in a Mississippi shipyard in 1954, in line with an account from Cedomir “Cheddy” M. Sliepcevich, a chemical engineer instrumental within the start of the trade. The barge, which was to liquefy fuel for cargo to the Chicago Stock Yards, couldn’t function economically, and the LNG trade moved on shore for the following 60 years.

LNG Movement

The fashionable LNG motion started in 2011. Crude oil rose again to $100 for the primary time because the recession, and the Fukushima nuclear catastrophe led Japan to close its nuclear energy vegetation and improve LNG imports for gas-fueled energy era. The gas in Japan rose from $11 per million Btu in the beginning of 2011 to just about $17 by the top.

Shell permitted its facility, known as Prelude, in May 2011. The platform will produce 3 times as a lot LNG as Satu and likewise extract condensate, an ultra-light type of crude oil, and liquefied petroleum gases. Shell says it’s not technically a ship as a result of it gained’t propel itself between locations. Prelude is predicted to be producing “material” money by 2018, Shell Chief Executive Officer Ben Van Beurden stated in April.

Current costs have dampened demand for floating LNG tasks. Petronas has delayed its second floating liquefaction plant by two years. The ship had its keel-laying ceremony at a South Korean shipyard on the finish of April and is predicted to be working by 2020. Colombia’s Pacific Exploration & Production Corp. terminated in March a contract to lease a floating liquefaction facility from Exmar NV. Shell, Woodside Petroleum Ltd. and different companions in March shelved a $40 billion challenge in western Australia.

“The fact that we have not gone ahead with that project at this stage as a consortium doesn’t mean the concept of floating LNG doesn’t work,” Van Beurden stated at a convention in Perth in April. “It does mean that the commodity cycle makes projects of that scale and investment level uninvestable at this point in time.”

© 2016 Bloomberg L.P