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Shell, Seven Group invest $3.5b in Crux gas for Prelude as unions take action

The Sydney Morning Herald

Shell, Seven Group invest $3.5b in Crux gas for Prelude as unions take action

By Peter Milne

Shell and Seven Group have sanctioned the $US2.5 billion ($3.5 billion) Crux gas field off Western Australia’s Kimberley coast to supply the world’s largest vessel – Shell’s Prelude floating LNG plant – on the same day unions gave notice of industrial action.

The announcement comes one week into the prime ministership of Anthony Albanese, who said he wants to be remembered for action on climate and is under pressure from the Greens to stop all new fossil fuel projects.

Wood Mackenzie analyst Michael Song said without Crux, before 2030 the 488 metre-long Prelude would not have sufficient gas to operate at full capacity.

Prelude was meant to be the world’s first floating LNG plant and a prototype for Shell to deploy globally to develop gas in remote areas that would otherwise be stranded.

Shell initially planned to tap the nearby Concerto field after the initial Prelude reservoir was drained, but later analysis showed Concerto would be less productive than expected, forcing Shell to source gas from Crux, 160 kilometres away.

Construction of Crux will start this year with the first gas from an unmanned platform with five wells expected to flow in 2027.

The disappointing Concerto reservoir is another setback for a project that has fallen well short of most metrics that determine a successful project.

Shell never released the cost of Prelude, but is understood to be at least $US17 billion, compared to the estimate when it was sanctioned in 2011 of about $12 billion. First export of LNG was delayed and since it commenced in 2019 production has been unreliable, with negligible output for most of 2021.

Emissions have been much higher than planned due to burning, or flaring, of excess gas during the shutdown.

Offshore safety and environment regulator NOPSEMA has twice taken the rare step of ordering Shell to cease production until safety issues were fixed.

A complete power failure in December 2021 left more than 200 crew without basic amenities and critical safety systems. NOPSEMA allowed production to restart in April.

Song, who estimates Crux will cost $US2.5 billion, said with long-term gas supply secured Shell needed to ensure there were no more technical problems, so it could benefit from current high LNG prices.

However, when gas from Crux is planned to be available in 2027 the market could be less friendly to sellers.

“Across 2026 to 2028 we expect more than 100 million tonnes a year of new LNG supply to enter the market from Qatar, the US, Nigeria and Canada,” Song said.

Seven Group is reported to have been trying to sell its 15 per cent stake in Crux for the past six months. The unreliability of Prelude would deter buyers as their revenue would stop every time the vessel shuts down.

Production at Prelude may also soon be affected by industrial action after the Offshore Alliance issues Shell a formal notice of protected industrial action on Monday listing 19 activities that would be banned at various times from June 10 to June 21.

A Shell Australia spokeswoman said it worked hard to provide a strong employee value proposition for its employees.

Shell gas and renewables director Wael Sawan said gas from Crux would help Shell’s Asian customers move from coal to gas as a cleaner-burning fuel.

The overall climate benefits of selling more gas into Asia are disputed. A CSIRO report commissioned but not released by Woodside found that increased gas exports from Australia could prolong the use of coal, displace renewables and increase emissions in Asia unless there was a global carbon price.

NOPSEMA has approved an overarching offshore project proposal for the Crux development. NOPSEMA must now approve environmental approvals for each stage of the project and its assessment is likely to consider the indirect, or Scope 3, emissions of Crux gas.

In March former resources minister Keith Pitt attempted to stop NOPSEMA from considering these emissions.


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