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Shell to Use World’s Biggest Ship at Australian Field

By Ben Sharples

Oct. 8 (Bloomberg) — Royal Dutch Shell Plc plans to deploy a vessel “much larger than an aircraft carrier” off the coast of northwestern Australia to house the world’s first floating liquefied natural gas plant.

Shell will use the technique at the Prelude and Concerto gas discoveries, Malcolm Brinded, the company’s executive director for international upstream business, said on a conference call today. The untested method is a “game- changer,” allowing discoveries that are small and too far from the coast to justify onshore plants to be profitable, he said.

The Hague-based Shell’s plans to employ what will be the biggest ship in the world are backed by the largest exploration budget of any oil company, estimated at $31 billion this year and $28 billion in 2010, Brinded said. The project is among more than a dozen that may propel Australia to second among global suppliers of the fuel from fifth now.

“There are clearly some technical challenges, but I think the industry is confident that a company like Shell would be able to address them,” Tony Regan, a consultant at Singapore- based Tri-Zen International, said by telephone. Regan previously worked for Shell’s LNG business.

Brinded declined to give an estimate of spending on the floating LNG project. Prelude is about 475 kilometers (297 miles) north, north-west of Broome in Western Australia, and about 200 kilometers from the Kimberley coast, Shell spokeswoman Claire Wilkinson said by phone from Perth. Shell fell 10 pence, or 0.6 percent, to 1,767.5 pence in London.

Samsung Forecast

Shell in July awarded a contract to Samsung Heavy Industries Co. and Technip SA to design, construct and install floating LNG facilities over 15 years. Shell may order as many as 10 units worth about $5 billion each, Samsung Heavy estimated in a July statement.

Inpex Corp., Shell and Santos Ltd. are among companies investigating floating LNG technology, yet to be deployed commercially. There are more than 100 fields globally suitable for the concept, Daryl Houghton, senior LNG consultant at Poten & Partners, said Sept. 11.

The vessel will weigh about 600,000 metric tons and be around 480 meters long, 75 meters wide, and designed to withstand a “one-in-10,000-year” tropical cyclone, Brinded said.

Floating LNG facilities may take less than half the time to build compared with onshore units and may cost a third of an onshore plant, according to estimates by Citigroup Inc. Shell’s decision is “putting floating LNG on the map,” Regan said. “It’s tremendously good news to the floating LNG community.”

Light Oil

The project will produce about 3.5 million metric tons of LNG annually and 1.3 million metric tons of condensate, a type of light oil, Brinded said. He declined to comment on the timing of a final investment decision or the first gas production from Prelude.

The fields, 100 percent-owned by Shell, lie in the Browse basin off Australia’s undeveloped Kimberley coast, where more than a third of the nation’s known offshore gas is located.

“Australia is a critical country for us, especially for growth in the LNG sector,” Brinded said.

Shell’s announcement is a sign Australia is cementing its status as a leader in the global LNG market and a “highly attractive and secure destination for investment,” Energy Minister Martin Ferguson said in a statement.

Floating LNG is important to Australia because of the remote fields within its waters that remain uneconomic in the absence of this technology, Ferguson said. A report by Australia’s Commonwealth Scientific and Industrial Research Organization last year estimated “stranded” gas reserves to be around 140 trillion cubic feet and worth around A$1 trillion ($903 billion), he said.

Design Studies

Chilling gas to liquid form on floating facilities has yet to be deployed commercially. Design and engineering studies for Prelude have started and are expected to take about 18 months to complete, Brinded said.

A draft environmental impact statement on the plan will be released for public comment on Oct. 12, Wilkinson said by telephone. Shell is working on production approvals for the project, it said in a statement.

LNG is natural gas chilled to liquid form, reducing it to one-six-hundredth of its original volume at minus 161 degrees Celsius (minus 259 Fahrenheit), for transportation by ship to destinations unconnected by pipeline. On arrival, it’s turned back into gas for distribution to power plants and households.

Pluto, Gorgon

Australia is now the fifth-largest exporter of LNG, generating A$10.1 billion in sales in 2008-2009, Ferguson said. With the addition of Woodside Petroleum Ltd.’s Pluto LNG project and the Chevron Corp.-led Gorgon venture, this is expected to more than double to about A$24 billion by 2017-2018, he said.

Arrow Energy Ltd., Shell’s Australian coal-seam gas partner, plans to supply the fuel to two LNG ventures in Gladstone — the Fisherman’s Landing project of Golar LNG Ltd. and Liquefied Natural Gas Ltd.; and Shell’s Curtis Island venture. They are among five LNG plants proposed for Queensland targeting sales to Asia.

The competing ventures may struggle to find enough workers, Gavin Madson, director of Fitch Ratings’ energy and utilities team, said today. “If they cannot line up the contractors, consolidation is what they’ll have to do.”

Shell is in talks with competitors developing LNG projects in Gladstone, central Queensland, about possible coordination, Brinded said. At the same time, he reiterated that the company is well positioned to “go-it-alone” with its project.

To contact the reporter on this story: Ben Sharples in Melbourne at [email protected]

Last Updated: October 8, 2009 12:04 EDT

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