The vessel being designed by CNOOC is likely to be smaller than Shell's Prelude FLNG plant

Chinese energy giant looking to build FLNG plant

Chinese energy giant CNOOC Group is considering building a multi-billion-dollar floating liquefied natural gas vessel.

While the state-run company has made no public announcement, a pre-feasibility study was well under way, CNOOC and other industry officials said, and two industry officials added that the firm was already talking to global engineering firms about possible joint design of the vessel.

FLNG ships are ocean-based liquefaction plants that can be positioned above reserves to chill extracted gas and load it into LNG tankers for delivery, a technology that could make fields too remote or too small to develop using undersea pipelines viable for production.

The firm's chief deepwater researcher Xie Bin told a seminar last month that CNOOC Group was doing a pre-feasibility study, which would come before more detailed research and design, to evaluate the potential costs and returns of using FLNG technology.

"For disputed waters, we need to be self-sufficient because we can't expect onshore support from any neighbouring nations," Xie said in the Chinese city of Tianjin. Approached later at the seminar by Reuters, Xie declined to make additional comments.

Xie said CNOOC was looking at an FLNG plant that could handle up to 2.4 million tonnes of gas per year (tpy) and operate at a depth of 1,500 metres (4,900 feet). Other industry sources said it might start with a smaller 1 million tpy vessel.

About 10 FLNG facilities are being planned globally with a handful under construction, among them the biggest, Prelude, owned by Royal Dutch Shell and due to be producing from an offshore Australian field by 2017 at a rate of 3.6 million tpy – still small versus some land-based LNG plants.

While a Chinese FLNG plant might be some years away, industry officials said such vessels could become an important component of Beijing's strategy in the South China Sea – including in waters disputed waters – as the country looks to boost its offshore energy output.

CNOOC Group, parent of the flagship listed unit CNOOC, told Reuters that research into FLNG technology was under way but declined to say more.

In April, an in-house article on CNOOC Group's website said its research and development arm together with two Chinese universities had designed a small-scale FLNG vessel with a capacity of about 5,000 tpy.

The company planned to build the model by the end of September and test it off the northeastern port city of Yingkou, the article said.

CNOOC Group is also courting foreign firms about possible joint design of an FLNG ship, said Li Jianmin, head of the deepwater engineering department at CNOOC, and Feng Qin, chief specialist for offshore engineering at Asia's top oil refiner Sinopec, but both declined to name potential partners when speaking to Reuters last week.

Feng said he was aware of CNOOC's study as well as plans by other Chinese energy firms to research FLNG technology. While Feng would not say if Sinopec was interested in FLNG, he said it was a promising option for the South China Sea.

"FLNG has an unrivalled advantage for relatively small-scale deepwater gas fields versus subsea pipelines," Feng said.

Wang Jinlian, secretary-general of the China Association of the National Shipbuilding Industry, told Reuters the government was ready to finance research and development and offer tax incentives for any local manufacturing work needed to build such floating liquefaction plants.

Government officials could not be reached for comment, but the Ministry of Finance issued a policy document in April supporting local companies developing offshore engineering technology through tax incentives and the waiving of import tariffs on components and raw materials.

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