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Will Shell’s Prelude FLNG project be another white elephant?

It is to me an example where common sense has been put aside and the herd followed the leader ‘we need elephants’. I sincerely hope for Shell that Prelude does not turn out to be yet another white elephant. …this spirit of ‘Olympic targets, Moonshots, if you can think it you can do it’ has also led to disasters for Shell USA in Alaska, huge write offs in the USA on shaleoil, a nonfunctional EP Europe when it was launched, the reserves crisis of Shell, the cost overruns in Sakhalin, Pearl and Kashagan by a factor 3-8 etc etc.

Introduction by John Donovan

On 10 January we published an article under the headline: Royal Dutch Shell Prelude to disaster?

It was based on information received from a Prelude insider source voicing deep concern over the safety of the construction of Shell’s Prelude FLNG flagship vessel, said to be the biggest ship in the world.

Since then, further information has been obtained, including more information from the same whistleblower.

Shell has to a large extent staked it future on this mega project.

Because of its importance, I supplied the additional information to two oil and gas industry experts.

Printed below are the comments received in response.

EXPERT COMMENTS ON PRELUDE FLNG PROJECT

John

Since your posting on Prelude a few weeks ago I started to think a bit on this project and like to share my concerns with you.

Reference: OTC 10791 (attached)

Meteorology goes far above my head but when I read:  ‘Together with tropical cyclone Orson (1989), this storm has led to a reassessment of metocean design criteria for the region.’ I get worried.

Ideally you would want to scale-up from a small FLNG to the real thing but this is not economic. Therefore this project is taking a leap of faith. Being an engineer myself I can go along with this in many cases provided the leap is not too great! We all know that there are always uncertainties and despite people like Hofmeister bleating around that Shell would never do anything dangerous I have seen too many disasters happen where all the calculations said it would be OK but in the end it still went wrong.

In these huge projects they will encounter problems not foreseen in an early stage. Changes will be made and one cannot oversee all the consequences. And when budgets are made available and a project is started, the pressure to do it cheaper or to absorb overruns on various parts will lead to optimisation and cornercutting. The project manager will always look for optimisations that he thinks he can get away with. It will be progressively difficult for some minor design engineer to stand up and say ‘STOP, we are going over the line’. That line often is a fuzzy one and the show must go on. If a manager in this project will be transferred soon because his job is nearly finished, he may have a different attitude towards certain standards than a newcomer! All very obvious but it needs to be said.

So, you had some warnings from a concerned insider in the project. It is very worrying that someone like this feels he should approach you rather than sort it out internally. And if there is one such a guy, I guarantee there will be more. But they all have a wife and family to look after and problems are likely to occur long after they are gone so what the hell. Most are people on a short service contract anyhow, and I know few of those that would to stand up in a great fight to get the standard up. I also know many project managers (and not even the worst ones) who are behaving like great bullies. They have to be in order to get the thing ready, on time and within budget. Complaining engineers are seen as a nuisance and dealt with….

Searching the web one can find a lot of information, see the 6 links below:

It becomes clear that the Prelude will be a huge weathervane of nearly 500 m long. The turret is built in Dubai. When you read in link 2 there is a statement that I have heard before in the roaring 90s:

“Such projects help us to take forward a process of changing mind sets and provide new challenges for the future. It helps us exemplify the driving thought behind the undying “Can Do” spirit of Dubai-“Don’t think past-Think future, Think opportunities,” which has formed the basis for our business and strategic outlook” he added.

I give it to Dubai that they have achieved some amazing results (albeit that they had to be rescued by their rich neighbours when building the Burj Khalifa…), but this spirit of ‘Olympic targets, Moonshots, if you can think it you can do it’ has also led to disasters for Shell USA in Alaska, huge write offs in the USA on shaleoil, a nonfunctional EP Europe when it was launched, the reserves crisis of Shell, the cost overruns in Sakhalin, Pearl and Kashagan by a factor 3-8 etc etc.

In the days when other monsterprojects were launched such as the development of BLNG, Brent, Troll, Draugen etc the preparation and thinking time was much greater and done inhouse. The hyping was less, these were seen as very complex jobs to be designed and made to work safely.

The technical top of Shell EP consisted largely of dutch engineers (finance and HR were in the hands of the brits…)  under the ‘leadership’ of the mother of all bastards Jan van Dam. He was the ultimate brilliant asshole and he personally scared all the directors so much that they made sure things were thought through, else he would personally destroy them. I am not advocating a return to get a bully like him back but rather a return to high standards. I also know this will not happen anymore. Shell has chosen to rely on the outside contractor world. And just believe me, I heard this from an old codger: ‘If you cannot do it yourself you also cannot manage it’. Only whenever there is a competitive market out there, Shell should get out as fast as possible. But this is all new stuff!

When you read the attached file (GulfofMexico.pdf) it becomes clear that using an FPSO in the GOM has been a long and difficult process and the destructive force of hurricanes keeps being underestimated! An FLNG is much larger, much more complex and technically much more dangerous (higher pressures, gas vs oil, extremely low temperatures for the LNG) as well as vulnerable to pirates and terrorists.

It is to me an example where common sense has been put aside and the herd followed the leader ‘we need elephants’. I sincerely hope for Shell that Prelude does not turn out to be yet another white elephant. This is the beauty as well as the danger of merging of RD and Shell under one CEO. Decisions can be made faster but there is less internal challenge. It is clear I would favour the old CMD structure where the challenge was more balanced. And I cannot recall any project that was delayed ‘waiting on CMD’!

Is there sufficient knowledge on what happens to a vessel of 500 m length when it is on location for 25 years in a cyclone area? See this youtube: http://www.youtube.com/watch?v=89Mw6L69b6Y

It would be very interesting if someone in your audience could lift a bit of text out of the Field Development Plan (FDP) that deals with operating issues, downtime estimates, decision trees when and how to pull off location. How is maintenance done? On site or in a dock?

And if they then throw in some views from the conceptual design on the stress levels and fatigue in the Prelude we have basically all the important parameters to judge if this is a sound project (or not). The mere fact that there is no cost figure floating around is ominous. For sure Shell has a figure or rather a range on which the FID (Final Investment Decision) is made. This must include an estimated operating cost and have data on expected downtime for weather, maintenance etc.

And I am curious where Shell will book the profits (if any): is it on the FLNG project, the transport on LNG carriers or the sale of LNG to customers? It all depends on the various tax regimes and the value one puts to the gas when it comes out of the field. I assume Shell will put that value at (near) zero since there would be no development if the field did not get developed. The tankers may make a packet and presumably are taxed outside Australia in a tax heaven…. The same was done 40 years ago in Brunei, so Shell knows the trick to maximise their own take. I wonder how many tax dollars Australia will receive. I bet they expect much more than they will get in the end!

  1. http://en.wikipedia.org/wiki/Prelude_FLNG
  2. http://www.rigzone.com/news/oil_gas/a/129227/Drydocks_World_Delivers_Prelude_FLNG_Turret_Module_to_Shell
  3. http://www.sbmoffshore.com/our-business-stories/projects/pioneering-offshore-lng-production/
  4. http://www.offshore-technology.com/projects/shell-project/
  5. http://s00.static-shell.com/content/dam/shell-new/local/country/aus/downloads/pdf/upstream/prelude-enews-may13.pdf
  6. http://www.upstreamonlinecareers.com/job/29232/prelude-flng-swivel-stack-execution-lead/ 

When discussing Prelude with an expert on offshore engineering he came back with these points and this only enhanced my concerns :

A few thoughts (in no particular order)

(1) This is the largest vessel ever built
(2) There is no real world data for a vessel of this size
(3) There is a limited amount of weather data for the area
(4) There is very limited data available on the magnitude and direction of the wind, waves, and currents that might be generated by a cyclone. Vessels/crews do not currently remain in place during cyclones to take measurements
(5) The data that does exist (OTC Paper 10791) suggests that the waves may come from a different direction than the wind, but the weathervaning design will cause the vessel to head into the wind rather than the sea.
(6) The vessel does not have the capability to disconnect or flee in an emergency
(7) This is a very remote area which would normally seem inappropriate for testing of new technology
(8) Nobody has ever built a floating LNG plant before. LNG plants on land are not required to survive the dynamic forces imposed by movement, or the effects of waves breaking over them, or the very high winds found only far offshore
(9) Computer modelling works very well only where there is sufficient real world data against which it can be compared
(10) “Sheltering in place” with the crew removed has caused many vessels in the Gulf of Mexico to break free or sink
(11) Comparisons with supertankers of a similar size are not valid because these powered vessels are able to manoeuvre to minimise the impact of storms, wind and waves and usually avoid cyclones completely
(12) Freak waves significantly larger than those predicted by existing models have been documented in those areas of the world for which suitable data exists.
(13) In the event that the vessel breaks free, and assuming all the wells can be shut in to avoid a blowout, there are probably no tugs in the area capable of bringing the vessel under control in the time available before it is driven onto the shore
(14) The first FPSOs in the US Gulf of Mexico have only recently been installed (September 2012), and little data on the impact of major hurricanes is available

Related documents

Gulf-of-Mexico – The first of two articles on the technical challenges and regulatory hurdles that were overcome to allow the use of floating production, storage, and offloading vessels (FPSOs) in the US

OTC 10791 – Paper entitled: “The Impact of Tropical Cyclone Olivia on Australia’s Northwest Shelf”

EP-Summary-Shell-Development-Aust–PreludeTop-Holes – Shell Development (Australia) Pty Ltd: Environment Plan Prelude ‘Top Holes’ Summary

eis-supplement– Prelude Floating LNG Project EIS Supplement-Response to Submissions

I have already forwarded the above on to two further experts, including Mr. Bill Campbell, the retired HSE Group Auditor of Shell International. Their comments will form the basis of a further article that will be published next week.  

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