LONDON (Reuters) - Norwegian shipper Golar LNG made big waves on Thursday by ordering its first floating liquefied natural gas (LNG) plant, an innovation that analysts said could loosen the grip on LNG production enjoyed by oil majors.
The announcement set Golar's stock soaring as analysts recommended shares in the Norwegian shipper, calling the move a big game changer. Its share price rose more than 10 percent to $43.14.
Golar agreed to convert one of its old LNG tankers into a floating LNG vessel (FLNGV), or production plant, and is eyeing African flared gas and pipeline systems as a source of supply, it said.
Singapore's Keppel Shipyard will start drawing up designs with vessel conversion due to start around mid-2013, Golar said, in a deal analysts say may cost $600 million.
It will produce around 2 million metric tons (2.2 million tons) of LNG annually.
Golar's billionaire chairman John Fredriksen said the company retains the right to convert another two tankers.
Fredriksen said FLNGV will open new markets for LNG as well as boost production capacity at a time of bottlenecks with "massive opportunities for growth in the next five to 10 years."
"If successful, a massive value transfer from oil companies to Golar LNG could emerge as the current LNG production cartel could be broken," RS Platou Markets said in a client note.
"A successful FLNG conversion will be a big game changer for GLNG as it can offer a full infrastructure solution between gas markets," it added.
The global LNG market is controlled by a handful of state and private companies, like Shell and BG Group, as the high cost of developing plants has prohibited the entry of independent players.
The move also underscores the growing attraction of LNG, with demand due to grow rapidly over the next decade as countries move away from coal-fired power plants towards cleaner burning gas.
It also paves the way for Golar LNG to leapfrog rivals by entering the upstream arm of the business long denied to shipping companies.
"This gives Golar the chance to enter the upstream segment, for example, by partnering with companies to monetize gas in west Africa that would otherwise be flared," Arctic Securities analyst Erik Stavseth said.
Oil drillers produce gas as a byproduct which is often flared, or burnt, on-site given its low value compared with crude oil.
Stavseth said Golar's ability to liquefy and sell stranded gas purchased at a discount will keep its shipments of LNG comparatively cheap at a time of rising global demand.
Unlike Shell's Prelude floating LNG project, the plant envisaged by Golar will be moored close to shore and supplied largely by pipelines, not distant offshore gas fields.
"The floating solution gives customers increased flexibility, quicker development times and the unique ability to develop reserves that are currently uneconomic," Golar said in a statement.
"It further gives them an opportunity to capitalize on the large global gas spreads and the attractive economics associated with gas as an energy resource," it added.
U.S. gas prices have bounced off 20-year lows to about $3 a million British thermal units (mmBtu), compared with $9/mmBtu in Europe and $13.50/mmBtu in Asia.
Golar's floating LNG plant will have maximum capacity of 2 million metric tons/year.
The first conversion will be ready by the first-quarter 2015, it added.
(Reporting by Oleg Vukmanovic, editing by William Hardy)