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Shell halts production on floating gas platform Prelude amid worsening industrial dispute

Shell halts production on floating gas platform Prelude amid worsening industrial dispute

ABC KimberleyBy Taylor Thompson-Fuller: 12  July 2022

Agreement ‘substandard’, union says

The disagreement over wages has seen union members ban the performance of certain tasks onboard, including a stoppage on unloading cargo onto ships for delivery at certain times.

A Shell spokesperson said production at the facility had been suspended due to the “work bans currently in force under Protected Industrial Action … that prohibit offtake activities”.

“Until the bans on the offtake of cargoes are lifted and the plant can be safely restarted, staff required to perform safety-critical functions will remain on board while all other workers will be demobilised,” the spokesperson said.

“Shell recognises the entitlement of all workers to exercise their rights, including the right to participate in industrial action,” the Shell spokesperson said.

According to publicly available documents, about 250 people typically working aboard the facility.

That number swells to 300 when heavy maintenance is required.

But the company’s claims about the shutdown were rejected by Offshore Alliance spokesperson Zach Duncalfe, who blamed the stoppage on Shell’s negotiating tactics.

“Shell has decided to adopt a very hostile, intransigent method of bargaining and it’s their way or the highway,” he said.

“They’re putting themselves in this position by a not talking to us and putting out a substandard enterprise agreement that they knew – or should have known – that no-one would vote for.”

The union has previously said Shell proposed that 25 per cent of workers’ pay be “discretionary“.

It hopes to continue negotiating until a new agreement is reached.

Dispute comes amid energy crisis

The developments come as gas prices rise due to supply shortages and the war in Ukraine, which has wreaked havoc on the energy market in the eastern states.

The move could push gas prices higher even though Shell only provides exports from Prelude to customers overseas, Monash University Energy Institute director Ariel Liebman said.

“The problems we have domestically on the east coast are because we are coupled to the same global market and the same supply/demand balance that the Prelude exports play into,” he said.

“On the east coast, spot prices for domestic gas can’t go much higher — they sort of tend to be capped by the domestic gas market rules.”

Shell will be losing revenue generated by the shutdown, but it might not affect the balance sheets too profoundly because of the sky-high gas price, according to Dr Liebman.

“I guess they’ll pick up some of that lost revenue through further increases in spot prices around the world that the other [Shell] facilities might benefit from,” he said.

“So maybe, on the balance, it’s not totally terrible for them as a global portfolio, but it is very strange to be doing it at this time.”

High prices were affecting everyday consumers, Dr Liebman said.

“Any increase in the reduction in supply leads on to difficulties, even if it’s only through impacts on price,” he said.

“So if the prices go up even further, some people can’t afford to use it and they will not heat their houses or businesses or produce energy, electricity or run their factories.”


Oil giant Shell feels heat over giant $21 billion Prelude floating LNG plant

By energy reporter Daniel Mercer
When Dutch-Anglo oil giant Shell decided to build a massive floating gas factory known as Prelude in 2011, it was billed as the dawn of a new era for the industry.

Australia was midway through a once-in-a-lifetime $300 billion splurge that would make the country the world’s biggest producer of super-chilled, shipped gas.

Floating gas plants were supposed to be the logical evolution, vacuuming up gas wherever they went and making fortunes for shareholders and taxpayers.

But barely a decade later, Prelude has been racked by cost and time blowouts, technical problems, and warnings from the regulator that the project came dangerously close to a catastrophic failure.

What’s more, critics say the facility may never pay a cent in royalties, is unlikely to deliver a molecule of gas to the domestic market, and has sent most of the construction jobs offshore.

It is all a far cry from the rhetoric of last decade, when Shell’s then-Australian chairwoman Ann Pickard said Prelude would be “full of Australians” and “generate a tonne of tax revenues”.

How did the reality diverge so widely from the rhetoric, and what does the future hold for Shell’s grand plans?

‘Good idea’ beset by problems

For veteran industry analyst Peter Strachan, the answer is simple.

According to Mr Strachan, Prelude was a good idea from Shell’s point of view.

Unlike a conventional liquefied natural gas (LNG) plant on land, a floating facility could move from field to field to process the gas.

Making the idea even more attractive was the expectation a floating plant could do it all cheaper and quicker than a traditional one.

But whereas the concept was sound, Mr Strachan said the execution had been poor and bedevilled by problems.

He said these started with the facility’s construction at a South Korean shipyard, where work was still not finished when the vessel was floated in 2017.

Since then, he said the difficulties had only grown.

“Just building a liquefied natural gas plant anywhere is probably the most complex bit of equipment you can build,” Mr Strachan said.

“So then to redesign it and put it on a floating platform — i.e. a huge ship — was always going to be a challenge.”

A ‘bad outcome for Australia’

Former West Australian premier Colin Barnett offers a similarly frank assessment.

As the state’s leader when Shell pressed ahead with its floating LNG plans, Mr Barnett said he only “reluctantly” supported the project after he was assured there were no other ways to commercially develop the Prelude fields.

But he said the project had failed to live up to the hype and Australians were bearing the burden of a missed opportunity as well as costs from Prelude’s considerable greenhouse gas emissions.

“There’s quite a history of disasters in the resources industry, particularly when companies try new technologies,” Mr Barnett said.

“I suspect Shell will eventually get it going.

Alex Hillman, a former lobbyist and engineer at Australian oil and gas producer Woodside, agreed.

He said direct emissions from Prelude would amount to more than 2 million tonnes of carbon dioxide equivalent, and a further 10 million tonnes if emissions from its customers were included.

All up, he said these amounted to almost twice the emissions from WA’s entire coal-fired power industry.

Mr Hillman, now an analyst at activist adviser the Australian Centre for Corporate Responsibility, said the project’s financial and technical problems were obvious enough.

He noted that an initial budget of $US12.6 billion ($17 billion) was rumoured to have shot up by more than 50 per cent, while he claimed it was not producing regularly until 2019 — three years late.

On top of this, he said Prelude had barely operated for half the time since it was commissioned and had struggled to run for six months consecutively.

Safety ‘biggest worry of all’

More worryingly for Shell, Mr Hillman suggested, were the safety problems that had affected Prelude in the short time it had been running.

He said these culminated in a fire at the facility in December that triggered a loss of power on the huge 488-metre-long vessel.

Citing a report by industry watchdog the National Offshore Petroleum Safety and Environment Management Authority (NOPSEMA), Mr Hillman said the plant came perilously close to a calamity that would have endangered 300 workers on board.

Such was the seriousness of the threat, NOPSEMA effectively shut the plant down until the problems were fixed.

“At one stage a power outage meant the hull was losing structural integrity and at risk of catastrophic failure,” Mr Hillman said.

“At another stage, the toilets stopped working, creating sanitation risks for the crew.

In response to questions, Shell noted NOPSEMA had recently lifted its suspension on Prelude, which resumed shipments last week.

A spokeswoman for the company said the resumption only took place once Shell had demonstrated that the facility could “safely recover essential power and associated essential services” in the event of a similar incident.

“Restarting the facility only commenced after the investigation into the cause of the incident was completed and findings were actioned,” the spokeswoman said.

Prelude to be first and last?

Mr Barnett, who served as WA’s premier from 2008 until 2017, said he doubted any other major oil and gas companies would follow Shell’s lead in building a major floating LNG plant.

He said the Prelude saga should serve to highlight the importance of developing resources to benefit a country and its taxpayers who ultimately owned them.

“Shell probably had an aspiration to build these all over the world,” he said.

“I suspect that’s gone.

Mr Hillman agreed, explaining Shell had originally advocated a “design one, build many” approach to its floating LNG strategy but had subsequently abandoned those plans.

He said the cost blowouts and long delays in starting up Prelude meant the project would battle to turn a profit for years.

Combined with Australia’s tax treatment for offshore oil and gas projects, he said Prelude may not pay anything for the gas it processes for decades, if ever.

“The thing about super-major projects like Prelude is that cash starts flowing out quickly after [the final investment decision], and any delay to revenue really hurts the project’s returns,” he said.

“It’s likely Prelude is an uncomfortable topic in Shell’s boardroom, which would make it hard to get a new FLNG project taken seriously.”

Look at the long term: Shell

With international gas prices at historic highs, Mr Strachan said it was possible Prelude could still claw back its losses and provide a return to the Australian government.

He also suggested companies with “less money and corporate pride” might have already walked away from a project such as Prelude.

However, Mr Strachan echoed Mr Barnett’s comments that Prelude had been a “poor outcome” for Australia.

“It hasn’t been a huge bonanza for the Australian Treasury in terms of jobs or tax,” he said.

The Shell spokeswoman said the company always looked to invest locally where possible but there were few shipyards in the world that could have built Prelude.

She signalled the firm’s shift away from the floating LNG strategy, saying “There is no current plan in our development pipeline for new FLNG projects”.

The spokeswoman pointed out that Shell had paid more than $230 million in income tax, royalties, and other rates and contributions in 2020 while its “total direct taxation” in the 10 years to the end of 2020 was $5.6 billion.

“LNG projects can take more than a decade to make a return on investment, but are expected to generate benefits for 30 to 50 years,” the spokeswoman said.

“Shell has been providing energy to Australians for 120 years and our assets including [Queensland Gas Company], the North West Shelf, and Gorgon are major sources of supply to the domestic market.”



World’s largest floating LNG factory remains in shutdown — at just three years old

Posted updated 
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