Shell's floating LNG rig

Shell plans floating rig to chill Australian gas for Asia

Shell is to anchor the world’s biggest ship off Australia to supply gas to Asia in a project likely to cost over $10 billion.

Royal Dutch Shell expects to start chilling gas into liquid form from around 2017 aboard the Prelude floating LNG vessel – a ship six times heavier than the largest aircraft carrier. It will be longer than four soccer fields and will be built at a shipyard in South Korea.

“LNG is a very fast growing part of our business,” Malcolm Brinded, Shell’s executive director of upstream international said.

“Floating technology is an exciting innovation, complementary to onshore LNG, which can help accelerate the development of gas resources.”

Brinded said floating LNG, which allows gas companies to tap fields in more remote offshore locations with no need for pipeline links to land, would revolutionise the LNG industry, with several other projects following close behind Shell’s lead.

Shell’s overall upstream investment in Australia would reach some $30 billion over the next five years, the energy company said, but declined to give exact details on the Prelude’s cost.

Brinded said the capital expenditure for Prelude would be similar to recently approved LNG projects at around $3 billion to $3.5 billion per million tonnes of LNG per year. That would indicate costs for the 3.6 mtpa project of around $10.8 billion to $12.6 billion.

Australia, already one of the world’s largest LNG exporters, has around $214 billion worth of LNG projects on the drawing board and aims to triple current production to 60 million tonnes a year by 2020 to help meet surging demand in Asia.

“It’s significant from Australia’s perspective because it’s another project under construction,” said Craig McMahon, an analyst at Wood Mackenzie.

“During 2011 you could have seven projects under construction at the same time - all the talk and potential is becoming a reality.”

The Prelude project off northwest Australia will extract gas and chill it to liquid form before loading it onto smaller ships for export mainly to Asia, where demand for LNG is set to double this decade.

“In terms of who is producing LNG, there is going to be a shift towards Australia,” said an analyst at Bernstein Research in London.

“Australia has got a huge amount of gas, it's close to the Asian sources of demand for LNG.”

Qatar is the world's largest LNG exporter with a capacity of 77 million tonnes a year.

Shell said it was now ready to start detailed design and construction of its Prelude floating LNG (FLNG) facility.

When fully equipped and with its storage tanks full, it would weigh around 600,000 tonnes - about six times as much as the largest aircraft carrier, Shell said.

It would use 260,000 tonnes of steel and be designed to withstand a Category 5 cyclone.

Increased LNG demand from leading importer Japan after a tsunami ruined several nuclear reactors and prompted the closure of others has improved the prospects for all gas exporters.

Japan has increased its LNG imports by 20 cargoes a month by some estimates and the tsunami may result in Japan bumping up LNG imports by 7 to 8 million tonnes from 70 million tonnes of LNG in 2010, analysts say.

China imported just over 9 million tonnes of LNG in 2010, but its consumption is expected to rocket five-fold to 46 million tonnes by 2020.

Earlier this week, Shell signed an agreement to supply Taiwan's CPC Corp with 2 million tonnes of LNG per year for 20 years.

Analysts said the deal is likely linked to Prelude LNG.

Shell has secured an off take agreement with Osaka Gas for 0.8 mtpa from the Prelude project.

Shell’s technology is also due to be used in a planned floating LNG plant for the Greater Sunrise field in waters between East Timor and Australia with Woodside Petroleum.

East Timor is disputing the plan and wants an LNG plant built on its shores.

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