Step into liquid

On 25 July 2017, Shell Australia made a major announcement: its floating liquefied natural gas (FLNG) facility had arrived at its final location in the Browse LNG Basin. The facility, which has been in development since 2011, is the world’s second floating liquefied natural gas (LNG) platform, and the largest offshore facility ever made.

Measuring 488m end to end – longer than four football fields – and weighing more than 600,000t, the vessel more closely resembles a ship than a traditional (LNG) plant. Once it is up and running, it will produce around 3.6 million tons of LNG each year.

“Prelude’s arrival is a clear demonstration of Shell’s long-standing commitment to investment and development in Australia, delivering significant economic benefits to the nation,” said Shell Australia’s chairman, Zoe Yujnovich.

Over the coming months, the project will be fully installed and commissioned, with production set to begin in 2018. This final phase of development is also the most labour-intensive, creating more than 1,500 jobs and involving up to a dozen support vessels.

Into the unknown

While Shell is remaining tight-lipped about the price tag, Prelude is thought to have cost around $14.0 billion, significantly higher than the original estimates of $10.8–12.6 billion. The investment, then, marks a bold step by Shell – an expensive gamble on littletested technology. So what is the story behind FLNG, and why has Shell chosen to roll the dice?

LNG itself, of course, is nothing new. A clear, colourless liquid that forms when natural gas is cooled to very low temperatures, it is far easier to store and ship than the gaseous form of the fuel. After undergoing a cooling process (which shrinks it to 1/600 of its original volume), the LNG is transported to its destination and turned back into a gas at regasification plants.

Shell has been involved in LNG from the start. The company owned the world’s first dedicated LNG carrier, the Methane Princess, which entered service in 1964. This ship, which sailed mainly between Algeria and the UK, made around 29 voyages a year before it was decommissioned in 1997. At one point, it accounted for around 10% of the UK’s total gas demand.

Since then, the global LNG trade has grown dramatically, with a particular boom over the past decade or so as new technologies have emerged. As of 2016, production stood at 258 million tons a year (over five times higher than in 1990), and the figure was projected to leap to 292 million tons in 2017. There are now at least 410 carriers worldwide, of which Shell owns more than 40.

“Global LNG trade demonstrated its flexibility time and again in 2016, responding to shortfalls in national and regional gas supply and to new emerging demand,” said Maarten Wetselaar, integrated gas and new energies director at Shell, in a release. “The outlook for LNG demand is set to grow at twice the rate of gas demand, at 4–5% a year between 2015 and 2030.”

With climate change targets looming, this trend is set to continue. Natural gas has a lower carbon intensity than other fossil fuels, and produces the lowest nitrogen and sulphur dioxide emissions. This makes it particularly desirable in the marine industry, which will face a global 0.5% sulphur cap from 2020. As costs continue to fall – and regulatory pressures increase – it is clear that LNG will form an important part of our future energy mix.

Shell has always seen opportunities in this space. In 2017, its first LNG bunker vessel arrived in Rotterdam, with a view to supplying ships with cleaner- burning fuel. The company also has a minority stake in Sakhalin-2, Russia’s first offshore gas project, which was billed as one of the most challenging engineering feats ever achieved.

FLNG, though, is something entirely new. The idea is that, rather than producing LNG onshore, operators will be able to extract and liquefy gas at sea before transferring it directly to transportation vessels. This will give them access to offshore fields that might otherwise have been difficult and costly.

Cheaper, greener

Although much of the world’s natural gas reserves are found offshore – perhaps around a third – this gas generally has to be brought onshore for processing. Typically this requires longdistance pipelines and extensive onshore infrastructure, which can often be economically unviable and negatively impact marine environments. FLNG, then, promises to do away with this problem, providing a cheaper and more eco-friendly alternative.

Shell first became interested in FLNG as early as the mid-1990s. It developed several concepts targeted at potential project developments, including the Sunrise project in 2001. Under this proposal, it would have built a process plant on a large barge, in the Greater Sunrise fields off Australia.

While this idea was rejected in favour of a land-based facility, all was not lost, and Shell continued to optimise its concept. In 2009, the company awarded FLNG contracts to Technip and Samsung for the design, construction and installation of multiple facilities over a period of up to 15 years. The first location was the recently discovered Prelude field, 475km away from Broome in Western Australia.

Two years later, Shell announced the final investment decision on the Prelude FLNG project, along with details about the facility’s size and capabilities.

“FLNG technology will allow Shell to develop offshore gas fields that otherwise would be too costly to develop,” said Malcolm Brinded, executive director of Shell Upstream International. “The decision to go ahead with this project is a true breakthrough for the LNG industry, giving it a significant boost to help meet the world’s growing demand for the cleanest-burning fossil fuel.”

In 2012, a number of additional stakeholders (INPEX Corporation, Korea Gas Corporation and CPC Corporation) joined the project, bringing Shell’s own stake down to 67.5%. Development continued apace: the first steel was cut that October, and the keel was laid by May 2013. Once construction was completed, the vessel embarked on a 5,500km journey from the Geoje shipyard in Korea to its new Australian home.

Although much of the technology required has already been used successfully onshore, some is unique to the floating facility. This includes, for instance, the capacity to manage sloshing in LNG tanks; LNG offloading arms; water intake risers; mooring systems; adapted processing equipment; and systems for managing the close coupling between the well and the processing facility.

Whatever the weather

Because the facility is only about a quarter of the size of a typical onshore LNG plant, the engineers also needed to create carefully stacked components that would work for the rather limited space aboard.

This technology, says Shell, has been extensively tested to ensure it can operate safely under marine conditions. After all, the offshore environment can be turbulent, battered by high winds and tropical cyclones. The facility needed to be resilient above all.

Once production begins, the facility will remain at the location for 20–25 years, where it will tap into the equivalent of three trillion cubic feet of resources. It will produce about 110,000 barrels of oil equivalent every day, and its annual production will surpass Hong Kong’s yearly gas demand.

As well as having easy access to the APAC market, the facility is being billed as a major source of job creation for Australia. So far, the majority of Prelude contracts have been awarded to contractors based in that country.

“Prelude is an Australian project and Shell has recognised how important it is to build strong partnerships with Australian industry,” said Yujnovich. Originally, Shell said that the expertise gained from Prelude would be used to inform future FLNG projects. Because the chosen design is not specific to the site, it should work for a range of gas fields, and will cost less on future deployments.

Unfortunately, 2016’s tricky market conditions put a spanner in the works; as oil prices plummeted, Shell scrapped an order with Samsung to build three further FLNG facilities. Similarly, Woodside Petroleum dropped plans to develop its own FLNG project in Australia, which had partners including Shell and BP.

Despite the hype that has accompanied FLNG, it seems the real test will be its cost-competitiveness; will the final product look suitably attractive to its customers, or will it ultimately struggle to justify the $14-billion investment?

“The underlying promise is it has to be competitive, as the customer doesn’t care where the gas comes from,” David Bird, vice-president of production at Shell Australia, told the Financial Times in July. “No one will pay a premium for LNG out of Prelude.”

While it is impossible to say at this stage whether or not Shell’s gamble will pay off, there can be no doubt that Prelude FLNG represents a breakthrough for the industry. As Rob Kretzers, Shell’s executive vicepresident of projects, put it in 2013: “Shell is pioneering FLNG, which has the potential to revolutionise the way natural gas resources are developed.”

Only time will tell if that potential can be fully realised.

Other FLNG projects

While Prelude FLNG is the largest facility of its kind, it is not the first. It was pipped to the post by Petronas, which has sited its 365m-long PFLNG Satu in the Kanowit gas field offshore Sarawak, Malaysia. This facility reached its final stages of commissioning in November 2016, and loaded its first cargo in April 2017.

Designed to last for up to 20 years, PFLNG Satu is expected to produce 1.2 million tons of LNG a year (this represents around a third of Prelude’s total).

There are several other projects currently in the pipeline:

• FLNG Hilli Episeyo: said to be the world’s first converted FLNG vessel, this is being converted from a 1970s Moss LNG carrier. Situated in Cameroon, it will produce around 2.4 million tons of LNG per annum and could be operational later this year.
• PFLNG2: Petronas’ second FLNG facility, which will be similar to the first, faced construction delays amid the oil price slump. However, it is on course to become operational in 2020.
• Fortuna FLNG: owned jointly by Ophir Energy and Golar LNG, this will produce around 2.2 million tons of LNG a year. Based off the coast of Equatorial Guinea, it is expected to begin production in 2020.
• Coral FLNG: last November, Italy’s Eni approved its investment plan for this project in Mozambique. It will have a liquefaction capacity of over 3.3 million tons of LNG a year. It will be fed by six subsea wells and has an estimated start-up date of 2022.