Shell gives nod to world's first floating LNG project

PERTH Fri May 20, 2011 9:24am BST

A Shell logo is seen on a pump at a petrol station in London April 28, 2010. REUTERS/Toby Melville

A Shell logo is seen on a pump at a petrol station in London April 28, 2010.

Credit: Reuters/Toby Melville

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PERTH (Reuters) - Royal Dutch Shell (RDSa.L) on Friday gave the go ahead to a $10 billion (6 billion pounds)-plus liquefied natural gas (LNG) project in Australia, set to be the world's first floating LNG plant and targeted at soaring Asian demand.

The Prelude project, with a capacity of 3.6 million tonnes a year and which Shell expects to come online around 2017, would be the largest floating object in the world -- longer than four soccer fields laid end to end.

"This is going to be a seal of confidence in the idea of floating LNG," said Tony Regan, analyst at Tri-Zen Capital in Singapore. Up until now, the liquefaction of offshore gas has involved piping the gas to a land-based plant.

Shell's executive director of upstream international business, Malcolm Brinded, said floating LNG would "change the rules of the game" in the LNG industry and said he hoped several more floating LNG projects will be approved before Prelude becomes operational.

Shell's overall upstream investment in Australia would reach some $30 billion over the next five years, the company said, but it declined to give details on Prelude's cost.

The capital expenditure for Prelude would be similar to recently approved LNG projects at around $3 billion to $3.5 billion per million tonnes of LNG per year, Brinded said. That would indicate costs for the 3.6 mtpa project of around $10.8 billion to $12.6 billion.

Shell, the largest private LNG shipper in the world, said it was ready to start detailed design and construction on the facility in a shipyard in South Korea.

When fully equipped and with its storage tanks full, it would weigh around 600,000 tonnes - about six times as much as the largest aircraft carrier, Shell said. It would use 260,000 tonnes of steel and be designed to withstand a Category 5 cyclone.

With the approval of Prelude, Shell joins a raft of other LNG project developers scrambling to meet rapidly growing Asian demand, particularly from China and India. Shell expects Asian LNG demand to double by 2020, according to Brinded.

Japan's LNG demand is also rising after a devastating earthquake and tsunami forced it to take several nuclear reactors offline.

Japan has increased its LNG imports by 20 cargoes a month to fire gas power plants to compensate for some of the lost nuclear-generation capacity. The impact of the tsunami may result in Japan bumping up LNG imports by 7 to 8 million tonnes per year from 70 million tonnes of LNG in 2010.

China imported just over 9 million tonnes of LNG in 2010, but its consumption is expected to rocket five-fold to 46 million tonnes by 2020.

Australia currently has around A$200 billion (132 billion pounds) worth of LNG projects on the drawing board. The industry aims to triple current production to 60 million tonnes a year by 2020.

"It's significant from Australia's perspective because it's another project under construction," said Craig McMahon, an analyst at Wood Mackenzie. "During 2011 you could have seven projects under construction at the same time, all the talk and potential is becoming a reality."

Earlier this week, Shell signed an agreement to supply Taiwan's CPC Corp with 2 million tonnes of LNG per year for 20 years.

Shell has also secured an offtake agreement with Osaka Gas (9532.T) for 0.8 mtpa from the Prelude project.

Shell's technology is also due to be used in a planned floating LNG plant for the Greater Sunrise field in waters straddling East Timor and Australia with Woodside Petroleum (WPL.AX). East Timor is disputing the plan and wants an LNG plant built on its shores.

(Editing by Ed Davies and Simon Webb)

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