-- Clyde Russell is a Reuters columnist. The views expressed are
By Clyde Russell
LAUNCESTON, Australia, May 9 Building a fleet of
the world's largest vessels has been touted as the solution to
the high costs of developing the next phase of liquefied natural
gas (LNG) investments in Australia.
But floating LNG, while worthwhile, may not be the
all-encompassing panacea that major oil and gas companies are
There are currently seven LNG projects, worth an estimated
$200 billion, under construction in Australia, enough to make
the nation the world's largest producer of the super-chilled
fuel by the time the last is commissioned around 2018.
These plants will add about 62 million tonnes of annual LNG
capacity to the existing 24.4 million tonnes, which will
catapult Australia's capacity past that of Qatar.
What is at risk is a so-called second wave of investment,
worth at least $180 billion, that could almost double the LNG
The oil and gas majors active in Australia have been out
beating the drum of high costs recently, using an industry
gathering in Perth last month to bluntly warn that unless
labour, regulatory and other costs come down, Australia will
lose out to countries like the United States, Canada and
Mozambique for new LNG projects.
One of the mooted solutions is switching from land-based LNG
plants to huge floating platforms, moored above gas fields, but
containing all the equipment and abilities of a conventional LNG
plant, just crammed into a much smaller space.
Royal Dutch Shell has already taken the plunge,
with construction of its Prelude floating LNG vessel underway in
It will be the largest floating structure ever built,
weighing some 600,000 tonnes, which is double the largest
Prelude will also be almost 500 metres long and is built to
withstand the category 5 cyclones that occasionally strike off
the Western Australian coast, where it will be permanently
But it's not clear that Prelude is any more cost effective
than building land-based plants.
The estimated capital cost is between $10.8 billion and
$12.6 billion for Prelude's 3.6 million tonne per annum
This gives a cost of $3.5 billion per million tonnes of
annual LNG capacity.
This is more expensive than the three LNG plants being built
on Australia's eastern seaboard that will be the first to use
coal-seam gas as a feedstock.
The Queensland Curtis project, operated by BG Group
has a capital cost of $2.4 billion per million tonnes of annual
capacity, the Gladstone plant being built by Santos
and Malaysia's Petronas is at $2.37 billion and the Asia-Pacific
LNG plant of ConocoPhillips is $2.74 billion.
However, Prelude is competitive with the land-based plants
being built in the north and west of Australia that draw gas
from deepwater offshore platforms.
Inpex's Ichthys project has a capital cost of $4.04
billion per million tonnes of annual LNG capacity, Chevron's
Gorgon is at $3.46 billion and its Wheatstone plant is
at $3.25 billion.
FLOATING ADVANTAGE IS MORE THAN COST
What these numbers show is that Shell isn't saving a huge
amount on building Prelude compared to land-based projects.
What the numbers don't show is that the Prelude field would
never have been developed without floating LNG, as it's too
small and too far offshore to be viable for a conventional
platform and sub-sea pipeline to a land-based liquefaction
This is the real advantage of floating LNG. It allows
smaller, stranded fields to be developed at a competitive cost.
This is why GDF Suez and Santos are considering the
technology for their Bonaparte field, and Exxon Mobil
and BHP Billiton are doing the same for the Scarborough
The decision by Woodside Petroleum to look at
floating LNG for its Browse field is perhaps different, as the
company initially planned building an onshore facility, but ran
into environmental objections and cost escalations to the point
where the economics no longer stacked up.
While floating LNG may not get around all the cost problems
associated with doing business in Australia, it does allow the
development of fields that would otherwise be uneconomic.
It's for this reason the giant vessels are more likely the
future, rather than the problem that labour and other costs in
Australia are too high.
(Editing by Muralikumar Anantharaman)