April 24, 2018 / 7:18 AM / 4 months ago

Shell, Inpex near finish line in race to export north Australian LNG

SINGAPORE (Reuters) - Shell and Inpex are on the final stretch of a years-long race to export gas from offshore northern Australia, where both have spent billions of dollars building the world’s biggest maritime vessels to grab a slice of Asia’s booming LNG market.

Filled oil drums are seen at Royal Dutch Shell Plc's lubricants blending plant in the town of Torzhok, north-west of Tver, November 7, 2014. REUTERS/Sergei Karpukhin/File Photo

Anglo-Dutch energy major Royal Dutch Shell and Inpex, Japan’s biggest oil and gas producer, are vying for first gas from two overlapping fields after delays and cost overruns that have plagued both projects.

The pair have spent billions on offshore facilities, including Shell’s 490 meter (1,600 ft) long Prelude floating liquefied natural gas unit and Inpex’s Ichthys Explorer semi-submersible platform, both the world’s largest of their class.

Inpex also has the 340 meter-long Ichthys Explorer, a floating LNG production and storage unit, built in South Korea, in parallel with Shell’s Prelude.

“Prelude and Ichthys are both record breaking mega-projects that have been competing throughout their development,” said Saul Kavonic or energy consultancy Wood Mackenzie.

Both arrived on site last year and are about to receive what’s known as a “cooling cargo” of liquefied natural gas (LNG), which indicates a plant is getting closer to starting output.

The delivery is used to chill the facilities ahead of regular production of LNG, which is shipped at a temperature of minus 160 degrees Celsius.

The race means more than just pride as the Prelude and Ichthys fields straddle the same gas in the Browse Basin, according to WoodMac.

“Their reservoirs are connected, meaning whichever project starts producing first will draw some gas away from the other project,” Kavonic said.

Ship tracking data in Thomson Reuters Eikon shows the ‘Gallina’ LNG tanker arrived at Prelude in mid-April in order to deliver a cooling cargo, while the ‘Pacific Breeze’ is due to arrive at the Ichthys field from Malaysia this week.

Both projects are still preparing for export, but Shell is grappling with the challenges of commissioning a brand new technology.

“We currently assume first cargo from Ichthys in Q3 and from Prelude in Q4, with risk of further delays,” said Kavonic.

A Shell spokeswoman reiterated that the oil major expects to get cash flow from Prelude in 2018.

Inpex has said it expects a start-up at Ichthys, initially due in 2016, in April or May.

“There is no change to the schedule that we announced in March,” Inpex spokesman Carlo Niederberger told Reuters.

Although both projects feed from the Browse Basin, Inpex said it was not yet certain whether there would be direct competition for gas between the two fields.

EXPENSIVE & LATE

Prelude - which will produce, process and export LNG - came at a cost of more than $13 billion, several years late and billions of dollars over initial estimates.

Prelude is expected to have an annual LNG production capacity of 3.6 million tonnes, making it the smallest but most challenging Australian LNG project in recent years.

Ichthys will send gas onshore to Darwin through an 890-km (550 mile) pipeline, where it will be processed into LNG for export. Once completed, the $40 billion project will have an annual LNG capacity estimated at nearly 9 million tonnes.

Both Prelude and Ichthys will also produce condensate, an ultra-light form of crude oil, as well as liquefied petroleum gas (LPG).

Exports from new LNG projects including Ichthys and Prelude are expected to help Australia overtake Qatar to become the world’s largest LNG exporter by the end of the decade.

Reporting by Henning Gloystein, Jessica Jaganathan in SINGAPORE, Osamu Tsukimori and Aaron Sheldrick in TOKYO; writing by Henning Gloystein; editing by Richard Pullin

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