FLNG Powers Ahead

BMI View : Giants from three different fields within the oil and gas industry - Shell, Technip and Samsung Heavy Industries - have committed to strengthen ing their collaboration in FLNG technology. This development indicat es that these leaders in the oil & gas space anticipate FLNG will play an important role in global LNG development. Indeed, we reiterate the cost benefits of FLNG relative to land-based projects, al though we also warn that the loss of local investment as production moves offshore could raise fierce government opposition to FLN G developments.

Royal Dutch Shell and the Technip-Samsung Consortium (TSC) have strengthened their partnership in floating liquefied natural gas (FLNG) technology after signing a heads of agreement (HoA) on December 13 2012. The firms will strengthen cooperation in the design, engineering, procurement, construction and installation of future FLNG facilities.

This HoA builds on a relationship first established in 2009. Through a 15-year Master Agreement, TSC - the consortium comprising French oilfield services giant Technip and South Korean offshore construction heavyweight Samsung Heavy Industries (HI) - is contracted to help develop Shell's FLNG projects worldwide. The aim of the HoA is to ensure that the partners will further exchange insights gained from working on Shell ' s first FLNG project - the Prelude project in northwest Australia - to bolster their position in the global FLNG market, with a view to 'expand [ing] this technical offering' to the energy market.

The partnership is particularly notable for bringing together some of the biggest names in their respective fields - global upstream production, oilfield services and offshore construction. The development indicates that the se industry giants perceive FLNG could play a big role in t he future of LNG production.

Floating On Cloud Nine

Indeed, FLNG projects are gaining traction worldwide. Shell broke new ground when it became the first company to embark on a FLNG project - Prelude - in May 2011. Since then, many other FLNG p rojects have been planned or proposed:

  • Shell- Inpex Corporation Abadi FLNG in Indonesia;

  • Noble Energy-led Tamar FLNG project in Israel;

  • GDF Suez- Santos Bonaparte FLNG in Australia;

  • Pacific Rubiales with an advanced floating liquefaction and regasifcation storage unit (FLRSU), planned off the Pacific coast of Colombia.

Malaysian national oil company (NOC) Petronas has launched studies into FLNG projects in two undisclosed locations, while Brazilian NOC Petrobras also awarded Technip the front-end engineering and design (FEED) contract for a proposed (but unnamed) FLNG unit in Brazil.

Many other new LNG developments could adopt the FLNG concept. Although at present FLNG projects are smaller in scale than onshore liquefaction facilities, they have been deemed to be more suitable for the development of marginal gas projects located offshore, according to both Shell and French major Total. Sitting directly atop offshore fields, a FLNG negates the need to build expensive subsea infrastructure to connect these gas resources to onshore facilities, therefore reduces the overall costs of the upstream project by allowing LNG to be produced directly onboard an offshore vessel.

Technical improvements will drive down the costs of constructing FLNG facilities and they could prove to be cheaper than land-based projects. A modular concept - building different components of a FLNG plant concurrently and fitting them together at a later stage - could also reduce the time between vessel delivery and full LNG production ( see our online service, April 2 2012, 'Floating LNG Unit Choice Points To New Global Trend'). Moreover, the ability to construct these parts in different locations around the globe would help overcome the problems associated with labour shortages and the high labour costs facing land-based LNG projects - the very problems contributing to cost blow-outs at Australian LNG projects.

All these factors strongly support FLNG as a choice for future LNG developments. Shell has been a particularly strong advocate, pushing partners in the Browse LNG development in Western Australia towards establishing a FLNG development to help monetise their offshore fields - rather than an onshore LNG plant at James Price Pont. The major has also encouraged its Sunrise joint venture (JV) partners - Woodside Petroleum, ConocoPhilips and Osaka Gas - to favour a FLNG concept to export gas from the Sunrise fields in the Timor Sea.

Winners And Losers

T he pioneers of FLNG, such as Shell and TSC , will have much to gain if they successfully propagate a trend towards FLNG development. FLNG as a means of monetis ing gas assets is expected to grow in popularity , with companies continuing to turn to undeveloped offshore resources to meet the world's growing need for gas. These firms could increase their revenue from licensing technology, offering their expertise or being the choice providers for FLNG partnership s , services or construction.

Guzzling Gas At Greater Pace
Global Gas Consumption, 2000-2021 (bcm)

However, governments may not be quite so happy about the growth in popularity of FLNG. They could see a loss of domestic investment as construction and plant development take place abroad. FLNG reduces the incentive for these private companies to transfer skills and technology to the domestic market.

This has been a major source of contention and a reason for delay s in developing the Greater Sunrise LNG project. Intense disagreement between the Sunrise JV and the government of Timor-Leste - which wants an onshore LNG development because it would bring local investment - have seen the latter threaten to evoke the JV's licensing rights to fields within the Sunrise Complex ( see, 'Treat Exit A Risky Bet', October 16 2012 ).

Similar regulatory roadblocks to FLNG development could arise, particularly for projects in countries where the oil and gas industry dominates, or could dominate, the economy. For instance, a prospective LNG project to develop gas resources offshore Mozambique and Tanzania could face this challenge , should the respective governments prioritise domestic investment over the speedy monetisation of their resources. Firms looking to FLNG will have to be prepared to justify the benefits of FLNG developments to the local economy relative to an onshore production facility in order to obtain regulatory clearance.

This article is tagged to:
Sector: Oil & Gas
Geography: Australia, Brazil, Colombia, Indonesia, Malaysia, Mozambique, Timor-Leste, Tanzania, Global

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