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Gulf Times Qatar: Shell, Statoil ‘output flaws’ may worsen LNG shortage

Published: Tuesday, 14 February, 2006, 09:13 AM Doha Time
SYDNEY: Royal Dutch Shell and Statoil are among liquefied natural gas producers that may miss output targets and worsen a scarcity of the fuel because of insufficient construction staff.
The shortage of engineers and other workers plus higher materials prices led to a 30% jump in building costs for new LNG plants over two years, Frank Harris at Wood Mackenzie Consultants Ltd estimated. That may delay startups and worsen a “tight’’ market through 2010, he said.
LNG producers are planning to build plants that will boost global output of the fuel 94% within five years, according to Citigroup Inc. The boom has stretched capacity at contractors such as Halliburton Co’s KBR and threatened to swell an estimated $67bn of capital investment in LNG plants, import terminals and ships in 2005-09.
“The level of activity on LNG construction is eating into the expertise and the resource base; we’re seeing a big squeeze,’’ said Andy Flower, an independent LNG consultant in London and a former executive at BP Plc. “It’s being manifested in delays in start-ups of new trains and in the cost increases, akin to the fact that there’s big demand and limited supply.’’
Demand for LNG may double to 264mn metric tonnes a year by 2010 because of increased consumption in the US and sales to new markets such as China, India and Mexico, Citigroup said in an October 24 report. About 97mn tons of LNG production capacity is under construction.
“We’re definitely talking about increased costs and/or delays and/or things going wrong when you try to start it up,’’ said Susan Farmer, a London-based partner at law firm Watson, Farley & Williams and an adviser on international LNG projects. Farmer is working in a group with MW Kellogg Ltd, a joint venture of Halliburton and Japan’s JGC Corp, to advise the Cyprus government on setting up an LNG import terminal.
Farmer joined senior executives from Shell, the world’s biggest non-government owner of LNG production capacity, and Korea Gas Corp, the world’s biggest LNG buyer, as a speaker at the LNG Asia Pacific 2006 conference in Seoul, that started yesterday.
James Boyd, California’s Energy Commissioner, and P Dasgupta, chief executive of Petronet LNG, India’s only LNG importer, will also speak at the two-day conference.
Development costs at Sakhalin-2, the world’s largest oil and gas project, may double to $20bn because of soaring metal prices, higher contractor fees and a declining US dollar, Shell said on June 14. LNG deliveries will start in the summer of 2008, about eight months behind schedule, Shell said.
Sakhalin and most other projects already under construction should meet their revised start-up targets, Robert Dencher, Shell’s country manager in South Korea, said at the conference yesterday. Those that aren’t so far advanced may be affected by shortages in LNG construction and shipbuilding capacity, he said.
“Beyond things that we already know, we wouldn’t foresee significant delays for the projects which are in the advanced development stage,’’ Dencher said in an interview at the conference. “For projects under consideration, of course it’s a totally different issue. If you look beyond 2009, 2010 it’s going to be very difficult to be precise.’’
Statoil, Norway’s largest oil company, on September 16 raised its estimate for the cost of its Snohvit liquefied natural gas project in the Arctic for a third time, to 58.3bn kroner ($8.6bn), or almost 50% more than initially budgeted in 2002.
Chevron, the second-largest US oil company, may announce by midyear an increase in the A$11bn ($8.1bn) 2003 cost estimate to build the 10mn tonnes-a-year Gorgon LNG project in Australia. The venture includes Shell and Exxon Mobil Corp. “There are challenges for the project as there are for those construction projects throughout Australia which include the cost of materials and the cost of labour and those types of issues,’’ said Scott Walker, a Gorgon spokesman. – Bloomberg

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