Shell Plans to Build Floating Gas Plant

Project Could Provide Means to Harvest Remote Offshore Fields By GUY CHAZAN Royal Dutch Shell PLC on Thursday announced plans to deploy the world's first floating liquefied-natural-gas (LNG) facility, off the coast of northwestern Australia, in a move that could have major repercussions for the global natural-gas industry. The landmark project—which Shell said will be the world's largest vessel, much bigger than an aircraft carrier—will be closely watched by the other super-majors, who have long been considering the potential for a floating facility. The technology, which has never been tested commercially, allows offshore gas reserves to be processed in situ, rather than being piped to the coast and liquefied in onshore plants. It has the potential to unlock dozens of "stranded" gas fields that are too remote to be developed by conventional means. Shell said the plant will be deployed to Prelude and Concerto, two recent gas discoveries it has made in the Browse Basin off the northwest coast of Western Australia. But the Anglo-Dutch major hopes floating LNG can be used in dozens of other places around the world. "It's a game-changer," said Jon Chadwick, Shell's vice president for Australia. "It enables us to monetize gas resources that would otherwise stay in the ground." Floating LNG was, he said, ideal for gas accumulations that were small and far offshore, "where the economics wouldn't justify the construction of a pipeline to the coast." He also said it could be used close to environmentally sensitive coastal areas where oil companies are unable to build onshore LNG plants. That could be a boon for Australia. The country's energy minister, Martin Ferguson, on Thursday said Australia had 140 trillion cubic feet of stranded gas reserves, worth about $1 trillion Australian dollars (US$890 billion). Another advantage is that once a floating LNG plant has exhausted a gas field, it can be redeployed elsewhere. LNG is gas that is cooled to about minus 160 degrees Celsius and then shipped to market on tankers. Demand for the clean-burning fuel has soared, especially from fast-growing Asian economies like China and India. Oil-and-gas consultancy Wood Mackenzie says LNG demand will more than double to about 370 million metric tons a year by 2020. The super-majors first looked at floating LNG in the mid-1990s but were deterred by the high cost, technical challenges and the immature state of the natural-gas market. But in recent months, a number of companies have prepared to take the plunge. Japan's Inpex Holdings Inc. is working on a floating LNG project in the Timor Sea, in eastern Indonesia, and Australian oil-and-gas group Santos Ltd is planning to use the technology at some of its Australian gas fields in a joint venture with French energy firm GDF Suez SA. Shell's venture is one of the more ambitious. "For Shell, it could become a calling card that allows it to demonstrate its engineering and commercial capabilities," said Frank Harris, a gas analyst at Wood Mackenzie. "It's a real opportunity to gain first-mover advantage." He said positioning itself as a world leader in the technology would increase its chances in Brazil, now considered one of the world's hottest exploration plays. Brazilian state oil companyPetroleo BrasileiroSA, or Petrobras, has said it wants to use floating LNG to develop the vast gas resources it recently discovered under a thick layer of salt off Brazil's southeast coast. Shell's first big step toward the new technology came in July, when it signed a contract with a consortium made up of Samsung Heavy Industries Co. of Korea, and France's Technip SA to build floating LNG plants. At the time, Samsung said Shell could order as many as 10 of the plants, priced at $5 billion each, over the next 15 years. The LNG facility to be deployed at Prelude will be 480 meters, or about 500 yards, long and 75 meters wide, and will weigh 600,000 metric tons—heavy enough to make it resistant to cyclones. It will have the capacity to produce 3.5 million metric tons of LNG a year, thoughShell officials stress the project is still at the engineering and design phase and a final investment decision is still far off.