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FLNG’s hard sell amid political difficulty

Pioneering floating liquefied natural gas (FLNG) technology is poised to revolutionise the industry. However its success will not purely be a function of technological progress but its sponsors’ ability to navigate some politically choppy waters

The industry has been awash with fervour about the technological advances FLNG promoters have made, particularly Anglo-Dutch supermajor Shell’s cutting-edge Prelude project.

But FLNG production has the potential to become as politically controversial as the hydraulic-fracture stimulation (fracking) technique that has revolutionised the unconventional oil and gas business.

Put simply, floating a ship over a gasfield, sucking the gas up and exporting it elsewhere could in some parts of the world be a hard sell politically, especially if it’s the international oil companies (IOCs) doing it.

To the average layman it’s akin to daylight robbery. Of course the IOCs would pay some taxes. But on the surface it appears they are making little contribution to the host country.

Clearly, operators hoping to plug themselves into a state’s resources via FLNG will need to run a persuasive campaign to overcome provincial attitudes and nationalistic opinion.

In Malaysia, where national oil company Petronas has ambitious plans to start up what would be the world’s first FLNG liquefaction ship in 2016, there will be no issue at all.

But Australia’s Woodside Petroleum, under the previous leadership of Don Voelte, tripped up when it tried to shove Shell’s FLNG concept down Timor Leste’s throat.

The fledgling nation’s leaders rejected FLNG, instead preferring to pursue piping the gas to shore for processing. This option, they hope, will bring more numerous economic benefits to its people, as well as forms part of its vision to drive an onshore petroleum industry.

The two sides have failed to reach a compromise and the development of the Greater Sunrise fields has stalled.

Today Woodside is again coming up against political resistance, this time for a proposed multi-vessel FLNG project in waters off its home state of West Australia.

The Browse venture, spearheaded by Woodside and Shell, has opted to pursue a phased FLNG scheme to develop the 15.5 trillion cubic feet resource.

The originally proposed onshore complex was scrapped after soaring costs and one of the highest break-even rates in the industry made it uneconomic.

But West Australian Premier, Colin Barnett, the state’s most powerful politician, is strongly against FLNG.

The state government is worried that an FLNG project will not create as many jobs – as the unit will be built in a South Korean shipyard – or as many royalties as an onshore facility, and will not provide gas to domestic users.

Barnett could be a thorn in FLNG’s side. The Timorese, considered a pesky lot by many an industry veteran, for their stance against FLNG, are easily dismissed as ignorant, but a widespread public backlash in Australia – home to at least five proposed FLNG liquefaction schemes – if handled wrongly, could derail the technology’s implementation. 

What the Timorese and Barnett often forget is that these projects might never happen without FLNG technology. Today the higher risks and costs involved to develop onshore greenfield plants in Australia makes them unfeasible.

FLNG on the other hand means Browse, as well as other projects, can proceed.

As a result more skilled jobs will be created in the long-term. In short, FLNG will boost the offshore services industry, as well as demand for onshore supply bases. Think helicopters, ships and barges, as well as the plethora of engineers and technicians needed to run the highly sophisticated floaters.

This is what the operators need to sell to the public.

But Shell is no slouch. West Australia is the testing ground for its trailblazing technology. And its latest hire, James Pearson, the new boy heading up government relations and communications in Shell’s Perth office, is more than the average public relations spinner.

Pearson, who joins Shell in November, has some powerful friends, having spent five years as chief executive of the state’s Chamber of Commerce and Industry, a post once held by Barnett.

Indeed, the future of FLNG, which could be a global phenomenon, effectively lies in his hands. Handled correctly, the industry could avoid a repeat of the anti-fracking hysteria that has swept the world.

Certainly, he will strive to avoid the resistance and opposition Woodside – in which Shell has a 24% shareholding – invited in Timor Leste.

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