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Oil majors turn to floating gas plant

THE AUSTRALIAN

Cath Hart | February 09, 2009

RISING Asian demand for energy has spurred major petroleum players to developing the world’s first floating liquefied natural gas (FLNG) plant. 

Despite the global economic crisis, companies including Royal Dutch Shell, Japan’s Inpex Corp, Perth-based Woodside, ExxonMobil and BHP Billiton are all in the race to become the first operators of FLNG projects in the region.

The innovative gas production concept involves turning gas into a liquid for export on board a vessel offshore rather than the traditional approach of piping gas to the mainland for processing in a facility.

One of the front-runners in the development of the innovative production concept is Royal Dutch Shell, which is looking to create a floating facility at its Prelude field in the Browse Basin off the coast of Western Australia.

Japan’s Inpex is considering FLNG at its Abadi field in Indonesia, while Woodside has raised the prospect of FLNG for its Greater Sunrise project in the Timor Sea, a joint venture with Shell.

Wood Mackenzie energy analyst Richard Quin said adapting gas liquefaction technology to fit on to a vessel that could be located offshore eliminated the need for long-distance offshore pipelines that were usually required to transport gas from the fields to the onshore LNG plant.

However, the process might not cut costs.

“Floating liquefaction technology is deemed to be quite expensive — how expensive is yet to be determined because no one has built a full scale FLNG boat yet,” Mr Quin said.

He said the technology had lacked appeal in the past because of its expense, but the rapid rise in the oil price before the crash, coupled with the strength of LNG demand in Asia, had encouraged operators to review more seriously FLNG development options.

The benefits of the concept are said to extend beyond balance sheets to the political arena where political issues can delay projects progressing. One of the best examples is the case of the Sunrise joint venture between Woodside, Shell, ConocoPhillips and Osaka Gas. The field’s location between the waters of Australia and East Timor has sparked debate between the nations over which country the gas should be processed in because the associated economic benefits of the processing flow to whichever country is home to such large-scale projects.

“One of the possible ways of lessening the debate as to where the LNG plant should be located would be to proceed with an FLNG development,” Mr Quin said.

“Another perceived advantage of FLNG is you don’t have to land the gas on to the environmentally sensitive coastline of Western Australia — you can avoid native title and environmental issues. This offers greater certainty on timing to the project operators.”

Resolving political issues on large projects with hefty capex costs is crucial for investment certainty.

FLNG may also provide the answer for Exxon’s joint venture with BHP Billiton to develop the Scarborough gas field, 270km offshore from Barrow Island.

Exxon is also thought to be reviewing FLNG technology to develop the field, which has abundant gas but a smaller volume of the higher-value liquids such as condensate and oil.

“It would be expensive to have a conventional development because the cost of the pipeline to shore would be prohibitive,” Mr Quin said.

While FLNG’s attributes appeared most attractive when burnished by the glow of high oil prices and a booming economy, Mr Quin said the development path for FLNG was still clear despite the recent dimming of the economic footlights.

Project operators striving to reach a Final Investment Decision were working to a longer timescale than the short-term drop in oil prices.

This was because the LNG business was a long game — it took four years to build a conventional project from the moment you decided to do it to the moment when LNG hit the market, he said.

However, Mr Quin said that Prelude, Sunrise, Abadi and Scarborough were not so advanced that operations could not be “shelved until the timing better suited the application of the technology”.

“There is a lot of engineering work that needs to be progressed before this becomes a reality,” he said.

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