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Royal Dutch Shell has resumed transporting gas cargoes from the largest floating structure ever built following a year-long technical hiatus that dampened the industry’s appetite for floating LNG technology.
The restart of the huge Prelude facility – which at 488 meters is longer than four football pitches – is a welcome boost for Shell as it coincides with a record breaking push LNG prices fueled by a cold snap in Asia.
But construction challenges, cost overruns and technical issues with Prelude, as well as difficult market conditions, have prompted Shell and other producers to cancel other FLNG projects.
“Prelude has been a ‘white elephant’ – we always thought it was technology seeking a solution rather than the other way around,” said Neil Beveridge, analyst at Bernstein.
He said there were a large number of competing onshore LNG projects aimed at entering the market that did not require the expensive pioneering technology needed by Prelude. As a result, very few large-scale FLNG projects were underway, Beveridge added.
Prelude had to be a flagship project for FLNG. Floating facilities liquefy gas from remote offshore fields without the need for onshore facilities to turn it into LNG, a vital fuel for energy-intensive markets in Asia. The gas is pumped from below the seabed to the floating platform, where it is cooled to turn it into liquid for further transport.
But the exercise turned out to be costly for Shell and its partners: the Japanese Inpex (which holds 17.5%), the Korean Kogas (10%) and OPIC Taiwan (5%).
Shell did not disclose the cost of Prelude but analysts estimate price tag climbed to AU $ 17 billion ($ 13 billion). The Anglo-Dutch company declared $ 9 billion in impairment charges on its Australian gas assets in the second and third quarters of 2020.
“LNG shipments have resumed from Shell’s Prelude FLNG facility. Prelude is a decades-long project, and our goal remains to provide sustained performance over the long term, ”Shell said Monday..
Prelude started shipping gas in June 2019, but was forced to shut down in February last year due to issues with its diesel generators.
The remote location of the facility – 475 km off the west coast of Australia – and its technical complexity, compounded by Covid-19 restrictions, added to the challenges for Shell in restarting operations, said analysts.
Saul Kavonic, analyst at Credit Suisse, said the industry’s ambitions for FLNG to be the next big LNG trend had been hit hard.
Shell decided not to proceed with orders for three FLNG facilities from Samsung following a 2016 decision by Woodside to cancel plans to jointly develop a gas field in Western Australia using this technology. Also in 2016, the FLNG projects supported by AltaGas of Canada and Exmar of Belgium in Canada and Colombia were abandoned due to poor market conditions.
“The FLNG industry’s ambition to ‘design one build many’ has unfortunately changed to ‘design multiple build one’ in some quarters following a disappointing execution of the project,” Kavonic said. “Only smaller niche applications are now considered plausible.”
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