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FLNG: The race is on to develop the first facility

It could yet require a photo finish to determine who wins the race to commercialise FLNG production technology

The contest to develop the world’s first floating liquefied natural gas (FLNG) plant is heating up. More than eight FLNG liquefaction projects, with a cumulative production capacity of 20.3 million tonnes a year (t/y), are on the table for the Asia-Pacific region alone. And at least three of these developments are going for gold.

In pole position is Shell’s Prelude scheme off northwest Australia. The huge 3.6 million t/y, 488 metre long facility was the world’s first FLNG liquefaction development to reach a final investment decision (FID) earlier this year (PE 6/11 p22). Construction of the vessel should be well under way at Samsung Heavy Industries’ South Korean shipyard in 2012.

Clear favourite

Prelude is the clear favourite to be the first FLNG export project on line, with start-up expected in 2017. But FLNG schemes in Malaysia and Papua New Guinea (PNG) are also pushing for FID this year and these two projects’ bold development plans, if met, would leave Prelude trailing in their wake.

Malaysia’s Petronas claims its proposed FLNG facility will start production by 2015. In June, chief executive Shamsul Azhar Abbas acknowledged the ambitious schedule for the 1.2 million t/y project, but explained that the company is not aiming for the same level of sophistication as Prelude, just yet. (In addition to 3.6 million t/y of LNG, Prelude will be able to process 1.3 million t/y of condensate and 400,000 t/y of liquefied petroleum gas.)

Petronas has not revealed where it will source gas supplies for the project, but the FLNG unit is expected to moor off Malaysia’s west coast.

The Malaysian national oil company’s decision to press ahead with a 100%-owned FLNG project is part of a wider long-term strategy to avert a looming domestic gas-supply shortfall, while meeting its long-term contractual export obligations from its Malaysia LNG complex in Bintulu (PE 8/10 p16).

PNG push

Meanwhile, in PNG, Liquid Nuigini Gas owners, InterOil and Pacific LNG, along with Norwegian listed Flex LNG have an even bolder target. The consortium, aims to have the world’s first FLNG production unit in operation during the second half 2014, to take advantage of very strong Asian demand for LNG forecast for the 2014-15 period, when there is a tight supply window, said Philip Fjeld, chief executive of Flex LNG. Gas would be sourced from the onshore Elk and Antelope fields.

Sceptics, however, suggest operators without Shell’s financial resources and track record as an LNG supplier and project developer may struggle to make FLNG work, especially within such tight schedules. Lars Ellegard, Asia-Pacific head of energy corporate finance at investment bank DnB Nor, expects the money will chase projects backed by credible sponsors with LNG experience and a strong mitigation of the technology risk, saying: “Those who are new to the game will face challenges.”

In southeast Asia, strict fiscal terms and restrictive marine cabotage laws are holding FLNG projects back, particularly in Malaysia and Indonesia (PE 2/11 p14), George Horsington, Swire Pacific Offshore’s general manager southeast Asia, argued at the recent Asia-Pacific FLNG summit. Forging ahead with FLNG projects in Malaysia and Indonesia will be tough, he added.

In southeast Asia, Petronas’ scheme is most likely to proceed: the national oil company has government backing; the project will develop national gas resources; and will be built in Malaysian state-owned shipyard MMHE. But as the shipyard’s first attempt at FLNG technology there is a risk of slippage in cost and schedule, as with all projects of this scale, said Horsington. France’s Technip and South Korea’s Daewoo Shipbuilding & Marine Engineering are conducting front-end engineering and design (Feed) work.

Stuck in the pit lane

Further obstacles face operators in developing countries, where governments tend to favour land-based liquefaction solutions to bring jobs, and cash, to local communities. Australia’s Woodside and the government of Timor Leste are deadlocked over plans to develop the Greater Sunrise gasfield using floating technology (PE 4/11 p32). While in neighbouring Indonesia, Inpex’s Abadi FLNG was stalled by the government’s preference for an onshore plant.

Inpex now expects to start Feed on its initial 2.5 million t/y unit this year, pushing the official start-up date back from 2016 to 2018 – although a senior LNG manager at Indonesian energy watchdog BPMigas said accelerated development could see production in 2016. FID could be made as early as next year ahead of Inpex’s official late-2013 deadline, he added.

Fjeld sees no stumbling blocks in PNG, however. “Comparing PNG to Indonesia and Timor Leste is not a fair comparison, as these countries have unique issues that are not necessarily transferable to PNG.” Indeed, PNG has a strong history in delivering resource projects, says Fjeld.

Aside from political hurdles, the commercial viability of FLNG projects in southeast Asia will be limited by existing onshore facilities that are running low on feedstock. There is a lot of sunk cost in shore-based LNG plants, particularly in Indonesia. The country’s 22.6 million t/y Bontang facility, for example, is under-utilised through lack of gas supply and expected to have spare capacity of 10 million to 15 million t/y by 2015. As Horsington points out, it’s cheaper to build a pipeline to deliver gas to ageing liquefaction plants than build a new FLNG production vessel.

Blossom in Australia

Philip Hagyard, senior vice-president LNG at French engineering firm Technip, which has delivered Feed work for Shell’s Prelude and Petrobras’ FLNG proposal in Brazil, sees some interesting prospects in southeast Asia, but expects FLNG developments to blossom in Australia, with its sizeable, remote offshore gasfields. Forecasts from Douglas Westwood suggest Australasia will lure $12 billion-worth, or 60%, of global capital expenditure on FLNG liquefaction capacity over the 2011 to 2017 period (PE 6/11 p22).

In its favour, Australia enjoys the confidence of investors and a close proximity to the Pacific basin market (accounting for nearly 60% of world LNG imports last year, according to Cedigaz). And FLNG bypasses the sensitivity to, and expense of construction on the coastline. Indeed, if Prelude offloads its first cargo by 2017 – less than 10 years from the field’s discovery in 2007 – by Australian standards that will be pretty quick.

Following Prelude, Thai national oil company PTTEP is striving to launch its 2 million t/y FLNG unit in late 2016, producing the Cash-Maple and Oliver fields, about 680 km west of Darwin, in Australia’s Northern Territory. Linde and SBM Offshore are providing engineering support for the project, and if the project’s appraisal programme continues to meet expectations, PTTEP will begin Feed this year, with plans to reach FID next year. All the volumes are likely to be delivered to Thailand.

The final furlong

As the challengers enter the final furlong to deliver the world’s first FLNG producer, Shell is by no means guaranteed to win the race. But, given the size and scope of its trailblazing Prelude project, it will certainly be the first production facility of its kind.

Flex’s FLNG scheme, albeit much smaller and less sophisticated, is hot on Shell’s heels. The firm completed comprehensive, generic Feed in 2009 and has a solid partner in Samsung Heavy Industries – the shipyard responsible for the design, engineering, build and commissioning of the FLNG vessel. The consortium now aims to wrap up the field specific Feed in time to reach FID later this year.

Petronas’ FLNG project could pip Shell to the post, but its ambitious 2015 target could be compromised as its shipyard enters virgin territory. And don’t forget dark-horse PTTEP, which would have few problems offloading its gas in a hungry and growing Thai market. The race could be heading for a photo finish.

Meanwhile, a host of other FLNG liquefaction projects are on the drawing board, with planned start-ups pencilled in between 2016 and 2018. GDF Suez and Santos’ Bonaparte proposal, off Australia, has recently entered the pre-Feed stage. And PNG national energy company Petromin together with Norway’s Hoegh have plans for an FLNG project utilising shore-based feedstock, although they are still in talks with upstream companies operating in the country, including Canada’s Talisman, to secure supplies from the Papuan basin.

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