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Shell plans world's first floating LNG terminal

The world's first floating liquefied natural gas terminal will go ahead off Australia, operator Shell said on Friday, confirming its arrival as top flight gas exporter with access to the Asian market.

Australia has around $200-billion (Australian) worth of LNG projects on the drawing board. The industry aims to triple current production to 60 million tonnes a year by 2020.

"It's significant from Australia's perspective because it's another project under construction," said Craig McMahon, an analyst at Wood Mackenzie. "During 2011 you could have seven projects under construction at the same time - all the talk and potential is becoming a reality."

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Royal Dutch Shell's Prelude project off northwest Australia will have a capacity of 3.6 million tonnes a year, extracting gas through a floating facility 200 metres higher than the Eiffel Tower.

Commercial operations are expected to start around 2017, exporting mainly to Asia, where demand for LNG is set to double this decade.

"In terms of who is producing LNG, there is going to be a shift toward Australia rather than Qatar," said an analyst at Bernstein Research in London.

"Australia has got a huge amount of gas, it's close to the Asian sources of demand for LNG. Asian prices tend to be slightly higher and Asian companies tend to import on long-term contracts, they are the best clients for LNG."

Qatar is the world's largest LNG exporter, but analysts say expansion projects there are running out of steam and other regions with plentiful gas reserves, such as Australia, will start growing market share.

The shale gas boom, especially in the United States, has also increased the importance of exporting gas on ships rather than via pipelines as resources can be easily exported to customers across the globe.

Shell's upstream investment in Australia would reach some $30-billion over the next five years, the company said in a statement.

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It did not give a breakdown of the expenditure, but the total cost would be equivalent to around a third of Shell's total capex for 2011-2014 of $100-billion announced on March 15.

Up until now, the liquefaction of offshore gas has involved piping it to a land-based plant, but floating facilities will allow producers to process and export the gas without infrastructure to connect to the mainland.

Shell said it was now ready to start detailed design and construction of its Prelude floating LNG (FLNG) facility in a shipyard in South Korea.

When fully equipped and with its storage tanks full, it would weigh around 600,000 tonnes - about six times as much as the largest aircraft carrier, Shell said. It would use 260,000 tonnes of steel and be designed to withstand a Category 5 cyclone.

"LNG is a very fast growing part of our business," Malcolm Brinded, Shell's executive director of upstream international, told Reuters Insider television.

"FLNG technology is an exciting innovation, complementary to onshore LNG, which can help accelerate the development of gas resources."

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With the approval of Prelude, Shell joins a raft of other LNG project developers scrambling to meet rapidly growing Asian demand, particularly from China and India.

There is also increased LNG demand from Japan after the tsunami took several nuclear reactors offline and most recently prompted Japan's Chubu Electric Power Co to shut its two operating nuclear reactors at the Hamaoka plant.

Japan has increased its LNG imports by 20 cargoes a month by some estimates. The impact of the tsunami may result in Japan bumping up LNG imports by 7 to 8 million tonnes from 70 million tonnes of LNG in 2010.

China imported just over 9 million tonnes of LNG in 2010, but its consumption is expected to rocket five-fold to 46 million tonnes by 2020.

Earlier this week, Shell signed an agreement to supply Taiwan's CPC Corp with 2 million tonnes of LNG per year for 20 years. Although the company said the LNG supply would come from its global portfolio, analysts said the deal is likely linked to Prelude LNG.

Shell has secured an offtake agreement with Osaka Gas for 0.8 mtpa from the Prelude project.

Shell's technology is also due to be used in a planned floating LNG plant for the Greater Sunrise field in waters straddling East Timor and Australia with Woodside Petroleum.

East Timor is disputing the plan and wants an LNG plant built on its shores.

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