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Shell sees slower roll-out of floating LNG

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Mr Henry said Prelude “remains on track to deliver some material cash flow in 2018,” signalling the venture still has some way until start-up.

Angela Macdonald-Smith: Energy Reporter:May 5, 2016

Royal Dutch Shell acknowledges the roll-out of its floating LNG technology will occur much more slowly than anticipated a few years ago, leaving its ground-breaking Prelude venture in WA as potentially its sole FLNG venture for several years.

Shell had targeted a conveyor belt of huge FLNG vessels running of the production line in South Korea, being deployed at remote gas fields worldwide, with several in waters around Asia.

But three projects that could have used five new FLNG vessels have been halted in their tracks, leaving the $US12 billion Prelude venture Shell’s only one for the forseeable future. FLNG ventures planned by other companies in Australia have also fallen foul to cost and price issues.

Chief financial officer Simon Henry said that at this point in the oil price cycle, and with a sharpened focus on project returns, it is “not actually a bad thing if there’s a bit of a deferral in FLNG.”

“At the moment, to be brutally honest, any large greenfield investment whether its FLNG, deep water or elsewhere, even in the downstream, is under very strict critical review for cost levels and economic returns simply because of where the industry is and where the financial framework for Shell is at this point in time,” Mr Henry said in a conference call with reporters.

But he said FLNG was still an attractive way to develop remote fields and he still expects Shell’s portfolio eventually to include several such projects.

“If I look in 10 to 15 years time I would hope that we would see multiple FLNG projects in the Shell portfolio because it’s a great way of monetising gas in a competitive manner that perhaps only Shell will be able to do,” Mr Henry said on a conference call after the first quarter results.

The March quarter saw Woodside Petroleum’s Browse FLNG project in which Shell has a stake and which would have involved three vessels put on ice as the partners seek a more economic development. Shell’s plans to develop its Abadi field in Indonesia with the technology also took a hit as the president demanded the development take place onshore. The Sunrise FLNG venture also remains in abeyance as Timor-Leste and Australia wrangle over maritime borders.

The Prelude vessel is meanwhile still in construction at the Samsung Heavy Industries yard in Geoje.

Mr Henry said Prelude “remains on track to deliver some material cash flow in 2018,” signalling the venture still has some way until start-up. That would be the first large-scale application of Shell’s FLNG technology, which allows LNG production from remote fields too far away from land to be developed in an onshore plant. 

He said FLNG “remains attractive” to develop “stranded” gas fields, holding between 3 trillion and 10 trillion cubic feet of gas and were a significant distance from onshore, and he expected it to be a significant part of Shell’s portfolio in the future.

But project returns have to stack up, and not just be marginal, he said, referring to the decision to defer Browse.

“We will only go ahead with any investment if we can see an attractive economic return through-cycle and that means being competitive, it doesn’t just mean a return it means that you need to have a genuinely competitive investment and operating cost level and that’s what the [Browse] partners will be seeking,” he said.

Mr Henry was very cool on the prospects for developing Abadi onshore, as stipulated by Indonesian President Joko Widodo in March.

“It’s too early to say where that one might head,” he said. “It was actually very difficult to see how you could make that one economic by going onshore.”

Read more: http://www.smh.com.au/business/energy/shell-sees-slower-rollout-of-floating-lng-20160504-gomoxs.html#ixzz47lRjrZ2d

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