Shell Plans $5B Floating LNG Off W Australia

SYDNEY (Dow Jones), Oct. 8, 2009

Royal Dutch Shell said Thursday it has commenced site-specific design work for what could be the world's first operational floating liquefied natural gas platform.

A draft environmental impact statement for the massive project, to be floated in Australian waters, will be released for public comment Monday, a Shell spokeswoman said.

Bigger than an aircraft carrier, the US $5 billion plant would have the capacity to produce 3.5 million tons of LNG a year and would be fed by the Anglo-Dutch major's Prelude and Concerto gas discoveries in the Browse Basin offshore Western Australia state.

LNG is natural gas super-cooled to liquid form so it can be transported by ship to places not connected by pipeline.

Floating LNG is increasingly being considered as a way to commercialize stranded gas resources too small to support the construction of more expensive onshore LNG terminals and their associated pipeline infrastructure.

Shell's move could cause concern for the dozens of other companies planning to build onshore LNG facilities in Australia and Papua New Guinea by presenting a cheaper alternative and adding to fears of a regional LNG supply glut.

As to timing, Shell said it has not yet made a final investment decision on the project, and that it is only in the front-end engineering and design phase. The spokeswoman said it isn't company policy for Shell to publicly disclose investment decision timetables.

Its move is unsurprising, with the multinational oil and gas producer having already indicated on several occasions that the Prelude field is a strong contender to host a floating LNG facility.

In July, Shell awarded a contract to a consortium of France's Technip SA and Korea's Samsung Heavy Industries Co. to build a US $5 billion floating LNG facility, with an option to order nine more over 15 years.

According to an application lodged by Shell in April 2008 with Australia's federal environment department, Shell said it was considering a 3.5 million tons a year floating LNG facility for Prelude to be operational by 2012. Such a timetable seems bullish now though, given that Shell is also working on or has interests in a number of other Australian LNG projects, including its proposed onshore terminal to be fed coal seam gas at Gladstone in Queensland state.

Shell Executive Director Upstream International Malcolm Brinded, who is in Australia, dismissed some analysts' concerns of a regional LNG supply glut, saying history has shown that a lot of planned LNG plants end up falling by the wayside. At the same time, demand for cleaner-burning fuels from fast-growing Asian economies, particularly India and China, is set to increase, driving demand, he said.

"Gas is an absolutely key energy source as a bridge to a fully sustainable energy future, and I think it will be a bridge that will last most of this century," Brinded told reporters on conference call from Perth.

Brinded said Shell is in consolidation talks with other ventures planning to build LNG plants at Gladstone, but added that Shell is well placed to "go it alone".

He declined to comment on whether Shell would sell its 34% stake in Woodside Petroleum Ltd. at the right price. "All I'd say is it's a position that we value," he said.

Back on floating LNG, Brinded said Shell's proposed facility would be about 480 meters long, 75 meters wide, weigh about 600,000 metric tons and be "significantly the largest vessel in the world when it's constructed".

He played down concerns potential customers could be spooked by the unproven nature of the technology.

"Although there are still details that need to be worked out in FEED, there's none that we see as likely showstoppers," he said.

Houston-based energy consultancy Poten & Partners said recently that Australia could accommodate the world's first large-scale floating LNG plant - but likely after 2015.

Poten & Partners Manager Asia Pacific Daryl Houghton said Australia's relatively calm seas and stable political and fiscal environment make it an attractive location to apply the technology.

Santos Ltd. last month formed a joint venture with GDF SUEZ to build a floating LNG platform near Shell's Prelude field, but the Adelaide-based company has said the partnership won't build the project until after Santos' coal seam gas LNG joint venture at Gladstone in Queensland state ships first gas in 2014.

Poten & Partners' Houghton has said a smaller scale project run by a company such as Norway's Flex LNG Ltd.  could happen a bit sooner.

"But so far not one of those projects are firmed up to the extent that you would feel confident about it happening," he said.

Flex LNG has an agreement with Samsung Heavy to buy four LNG-producing ships for delivery by the end of 2011.

Citigroup said in July that expenditure on floating LNG facilities is forecast to reach US $27 billion between 2009 and 2015, quoting independent research firm Douglas Westwood.

Australia's Minister for Resources and Energy Martin Ferguson said Thursday the development of floating LNG technology is important for Australia because it has many remote gas fields.

He quoted a government agency report that last year estimated Australian stranded gas reserves at about 140 million cubic feet, worth around A$1 trillion.

Copyright (c) 2009 Dow Jones & Company, Inc.

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