That needn’t be the case. Focusing on the vendor equipment supply chain from the outset, and the choice of codes and standards employed, are critical areas where expenditure can be protected, risks can be reduced and asset life can be enhanced. Get these strategies right and we will see a growing number of mega-projects over the next decade.
Supply chains have always been critical to industry’s success. Traditional shipbuilding supply chains, for example, have been developed – perfected even – to allow yards to construct ships as effectively as possible. The supply chain remains equally as important for FLNG assets; the issue is that it is not ships being built, but a new breed of floating unit. Almost every parameter has changed.
Mark Tipping, Principal Engineer for FLNG Development at Lloyd’s Register as well as class engineering project manager on the Prelude project, provides his insight: “While some of the world’s largest yards are able to stretch to accommodate these vast units, elements of the equipment supply chain are coming under enormous strain. There are a few reasons for this. Much of the technology being applied to FLNG assets is novel, revolutionary even when it comes to the liquefaction of natural gas on a moving platform. This has led to a steep learning curve for equipment suppliers, many of whom have not been exposed to the floating offshore environment before.
“The result is that even relatively straightforward orders, such as for process pipework, need to be shared among as many as 15 separate suppliers, who must all meet the same high-quality expectations. This is a real challenge because, beneath seemingly standard requests, lie unforeseen complications.
“Costing up to $13 billion each, FLNG projects are vast when compared to the very largest commercial shipping orders. As a ballpark figure, topside manufacture accounts for half of an FLNG vessel’s total build sum, with a further 25% invested in the hull. The remaining budget is split between cargo containment (2.5%), accommodation (2.5%) and other systems and components (20%). If new build costs spiral, particularly in core parts, the very future of the FLNG business will be in jeopardy.
“To date, it has been FLNG’s engineering challenges that have attracted attention and resources, from designing super-large hulls to adapting major plant liquefaction systems for floating installations, preventing sloshing, safeguarding against cryogenic spills and devising other innovative solutions.
“But now, there is everything to gain by rethinking the approach to the vendor equipment supply chain, one of the biggest risks to an FLNG project’s success. Despite the issues raised, there are a number of opportunities to improve the experience, reduce risks and realize potential costs savings. Here, Lloyd’s Register points to two critical factors.
“First, there is the choice of codes and standards to be made. Should an owner opt for the vendors’ benchmark – typically an industry standard, such as ASME, AWS, IEC or Class – or their own proprietary requirements? This decision is rightly seen as a matter of risk versus cost, but it needs broader consideration. By setting its own standards, a company can reassure stakeholders of the very best project intentions, and satisfy the demands set by legal and supply-chain specialists. However, this approach will be expensive, arguably prohibitively so for such vast FLNG projects. Vendors will charge a premium for delivering equipment to tailored specifications and owners will need to check that their specifications are being met. This is a global task, across a supply chain that will span some 25 countries, or more if we factor in sub-suppliers. Critically, will best intentions deliver the required equipment, systems and components to the yard? It is early days for FLNG, but supply chains are already being challenged.
“It is not hard to picture a worrying emerging pattern where initial standards are diluted, equipment is sourced from outside of approved vendor lists and a project’s progress is stalled as suppliers realize that the specifications go beyond what was envisaged. There is another compelling argument for rethinking the codes and standards applied to FLNG projects. Currently, FLNG new builds adopt the traditional approach for offshore projects that is applying marine standards to every component below the main deck (except the accommodation) and internationally recognized petrochemical standards to the topsides and process equipment. This approach is not fit for purpose. On FLNG assets, marine, topside and processing equipment are more greatly integrated than has previously been the case, with some marine equipment migrating into the topsides and, conversely, certain topsides components moving down into the hull. Drawing an arbitrary line along the main deck and applying codes and standards according to the break isn’t a cost-effective answer to realizing the most from the supply chain, especially when considering the challenges it faces. Nor does it provide the safest option.
“The solution is to review both the marine and petrochemical standards based on process requirements and safety considerations, assigning equipment, components and systems to either the marine or offshore process according to best engineering and safety practices, rather than where the deck begins. At Lloyd’s Register, we have formalized this task into a ‘Classification Plan’, part of our organization’s ‘Offshore Rules’. This initiative brings together over 50 years of offshore experience, including our technical knowledge of LNG containment and liquefaction technology, FPSO development and process engineering systems.
“Besides better delineation of codes and standards, the approach offers a means for owners to identify their critical asset equipment and rate it accordingly. This is the first method of cost saving that can be employed with no risk to a project, provided safety remains a constant driver.
“By taking this approach further, we can also help owners find the optimum balance between risk and cost, driving international requirements where they need to be driven, challenging others where safety and reliability can be assured, establishing bespoke specifications only when they need to be special, and taking advantage of universal codes and standards where items are of a routine nature or fit and compatibility can be guaranteed. The complexity of FLNG projects will never lend itself to a blanket approach here, but the fewer bespoke specifications, the greater the opportunity to reduce risk and cost with equipment supply.
“With codes and standards clear, supply chain assurance will be the second factor in delivering successful FLNG projects. As a leading provider of compliance and validation services, we know the value to major projects of ensuring that there is no weak link in the supply chain. With the right strategies and processes in place, owners will have a stronger safety net in halting increasing new build costs. Getting to this position can only begin by understanding the new nature of the FLNG supply chain, accepting it, and adapting to it accordingly.
“Given that everything is new, a change in mindset is required. Greater engagement with the supply chain will prove central, at least to the level of the sub-supplier. Owners and contractors will need to understand their suppliers’ position, as much as suppliers must immerse themselves in the project’s vision. Vendors must know what non-compliance looks like, with project-specific requirements being singled out in the procurement specification document. Enhanced management across the chain is also vital. Given the sheer extent of equipment vendors, owners must budget, and plan for, an extensive coordination effort. At key locations, informed, dedicated teams acting as expeditors, certifiers and consultants will prove invaluable, critically reviewing and revising reporting formats and mechanisms to focus on problems (project matters), rather than defects (local matters). Regular, timely communication will also help, with provision for handling feedback and enquiries from the supply chain, as well as broadcasting instructions. Enhanced management will mean monitoring every link in the chain – from specification to tendering, award, pre-production and delivery – and acting swiftly to address early signals of potential issues. You get what you actively manage, not pay for, should be the FLNG project mantra.
Source: Lloyd’s Register Energy