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Shell Restarts Production At Huge Prelude Project As LNG Prices Soar

Prelude was planned as a flagship floating LNG project for the Anglo-Dutch supermajor. Like most other large-scale offshore LNG projects, however, it ran into delays and cost overruns.

Shell Restarts Production At Huge Prelude Project As LNG Prices Soar

By Irina Slav – Jan 11, 2021, 11:00 AM CST

Shell has restarted production of liquefied natural gas at its Prelude offshore project in Australia after almost a year’s suspension.

“LNG cargoes have resumed from Shell’s Prelude FLNG facility,” Argus reported, citing a company statement.

The restart of the 3.6-million-ton facility comes at the best possible time. A cold spell in China has pushed LNG prices to the highest in years, erasing worry about an oversupplied market as Chinese buyers struggle to stock up on the fuel.

Prelude was planned as a flagship floating LNG project for the Anglo-Dutch supermajor. Like most other large-scale offshore LNG projects, however, it ran into delays and cost overruns. Shell and its peers have recently been forced to cancel other LNG projects as the competition is fierce. It resigned itself to focusing on the ones already in operation.

When Prelude stopped pumping gas last February, there was concern that the project, estimated to have cost anywhere between $9.25 billion (A$12 billion) and $131 billion (A$17 billion) to build, may flop as its breakeven price was estimated by analysts at $20 per 1,000 cu ft of natural gas, versus prices of $2-3 per 1,000 cu ft, according to the U.S. Energy Information Administration and Henry Hub price updates.

“Prelude has been a ‘white elephant’ — we always felt it was a technology looking for a solution rather than the other way round,” Bernstein analyst Neil Beveridge told the Financial Times in comments on the restart of the facility.

The intention may have been to develop a technology that can then be used to build many such facilities, as another analyst, Saul Kavonic, told the FT, but it ended up the wrong way round.

“The industry FLNG ambition to ‘design one build many’ has unfortunately become ‘design many build one’ in some quarters following disappointing project execution,” Kavonic told the FT. “Only more modest niche applications are now seen as plausible.”

By Irina Slav for Oilprice.com

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