Breakthrough Technology Unlocks Hidden Natural Gas Reserves

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Breakthrough Technology Unlocks Hidden Natural Gas Reserves

Those who doubt Australia’s ability to become the world’s largest exporter of liquefied natural gas (LNG) often point to the exorbitant cost of some of the country’s LNG projects.

And it’s a valid point. But there may be a solution to the problem, at least for offshore fields…

I’m talking about floating liquefied natural gas (FLNG) ships.

FLNG vessels, which dwarf aircraft carriers in size, serve as floating liquefaction, storage and offtake facilities. And they certainly come with a host of advantages.

You see, a floating project is estimated to take only two-thirds of the time of a land-based project. That’s not surprising, since you’re able to sidestep land development.

This is of particular concern in Australia, where natural gas fields are located close to environmentally sensitive coastal areas.

Not to mention the fact that Australia has stranded offshore natural gas estimated to be 140 trillion cubic feet (tcf) in size, which has been too costly to develop until now.

The Leader in FLNG

The recognized leader in FLNG technology globally is Royal Dutch Shell PLC (RDS.A).

It’s leading the way with a 67.5% interest in the $11- to $12-billion Prelude FLNG project – soon to be the world’s largest vessel.

Prelude is being built by South Korean shipyard, Samsung Heavy Industries, and is expected to be operational in the first half of 2016.

At 600,000 tons, it’s going to be six times bigger than the world’s largest aircraft carrier (534 yards long and 81 yards wide), and have an annual production capacity of 3.6 million metric tons (mmt) of LNG.

Prelude will be anchored by an 11,500-ton turret and will be moored in the Browse Basin found offshore North West Australia for at least 25 years. It can then be moved to another site if Shell wishes to do so.

Shell isn’t the only company that has its sights set on FLNG, though…

Exxon on Board

There are about 30 FLNG projects planned around the globe – the most prominent of which (besides Prelude) was unveiled by ExxonMobil (XOM) and BHP Billiton (BHP) a year ago.

With this 50-50 partnership, the two companies plan to use FLNG technology to develop Australia’s Scarborough gas field located in the Carnarvon Basin, off the west coast of Australia. Production is planned to start in 2020 or 2021.

The planned FLNG vessel will actually be a bit larger than Shell’s Prelude and will have an annual production capacity of 6 to 7 mmt of LNG.

But with a possible price tag of $18 billion to $24.5 billion, a final decision of whether to proceed with the project has yet to be made by Exxon and BHP.

Australia won’t be the only place these vessels will be used, however . . .

FLNG’s Bright Future

The number of offshore natural gas discoveries climbed dramatically in recent years.

In fact, Shell estimates that there’s at least 300,000 billion cubic feet (bcf) of natural gas lying in offshore fields.

These small gas fields have been ignored by energy companies because they were simply too costly to develop – due to the traditional ways of getting to the gas and converting it to LNG. Costs would include a fixed pipeline to a land-based liquefaction plant, and perhaps third party-owned transportation and processing infrastructure.

But FLNG will completely change the economics of these offshore fields.

The parallels to 1977 – when the first floating oil production vessel was built – are obvious.

We all know how offshore oil production has boomed since then. Shell’s Prelude may be just the beginning in an exciting new chapter in offshore gas development.

And “the chase” continues,

Tim Maverick

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