In May 2011, Shell hit the headlines with a radical new project. The Prelude floating liquefied natural gas (FLNG) structure had just been approved for funding and would represent a world first: not only would it be the largest offshore facility ever constructed but it would also be the first time a floating LNG platform had been deployed.
As construction got under way, the lack of precedent became apparent. Worlds apart from a traditional LNG plant, Prelude resembled nothing so much as an enormous seafaring vessel. A New York Times Magazine editorial dubbed it "The biggest ship in the world (even though it isn’t exactly a ship)".
While Prelude is currently stationed at a South Korean shipbuilding facility, it is indeed "not exactly a ship". At 488m long and more than 200,000t in weight, the structure will eventually be moored around 200km off the coast of Australia. There, it will be used to access offshore gas fields that would otherwise be too difficult or expensive to develop. Once operational, it is expected to produce at least 3.6 million tons of LNG a year.
"Floating LNG is the most important innovation in the gas industry in decades," says Roger Bounds, global head of LNG at Shell Integrated Gas. "We believe that FLNG will enable the development of gas resources ranging from clusters of smaller, more remote, fields to potentially larger fields, via multiple facilities where, for a range of reasons, an onshore development is not viable.
"This can mean faster, cheaper, more flexible development and deployment strategies for resources that were previously uneconomic, or constrained by technical or other challenges."
The purported benefits speak for themselves. That said, there is a significant amount of money hanging in the balance. While the total cost has not been disclosed, industry analysts have estimated the vessel will command a price between $10.8 billion and $12.6 billion, of which Shell itself maintains a 67.5% stake.
Nobody does it better
It is evident that despite the upfront cost, projects of this kind are fast becoming a strategic priority. As oil prices continue to fluctuate and environmental concerns become increasingly salient, the oil and gas industry is intent upon opening up new sources of fuel.
"It is well recognised that energy demand will continue to grow globally because of population growth, development and urbanisation," points out Bounds. "We need to make the best of all energy sources to meet this rising demand. Natural gas is uniquely positioned to help meet energy and environmental challenges as it is flexible, available, has a low CO2 footprint and is the cleanest-burning fossil fuel, while LNG is a flexible and attractive means of delivering natural gas to new markets, or to complement domestic or pipeline supplies."
Shell’s involvement with LNG is nothing new – last year, in fact, marked the 50th anniversary of the first commercial LNG cargo, which Shell shipped from Algeria to the UK. However, urgency is mounting, and as megaprojects of this kind take shape, they serve as an emblem of a broader trend.
By the end of 2013, the global LNG trade had grown 3,000-fold in size since the 1960s, with more than 380 carriers worldwide. Shell itself has more than 40 carriers in fleet shipping 35 million tons of LNG every year.
Today, the company’s expertise stretches beyond trading and shipping; it is involved in every stage of the LNG value chain, from the upstream of finding the fields and extracting the gas to the downstream of liquefying it, right through to distribution.
"Shell is one of the world’s largest LNG producers; we have one of the most diverse and flexible LNG portfolios, and access to strategic markets," says Bounds. "We also have the necessary logistical, contractual, financing and marketing skills to put together a complex LNG megaproject and make it happen.
"That breadth of expertise is essential in creating confidence with key stakeholders: investment banks, contractors, partners and resource-holding nations."
Liquid refreshment
Aside from Prelude, the company has been responsible for a number of LNG innovations. These include a plant in the far east of Russia that takes advantage of the icy climate to cool natural gas efficiently and an upcoming LNG carrier designed to be up to 20% more efficient than those typically used today.
It has also made inroads into the marine industry, operating two LNG-powered tank barges, Greenstream and Greenrhine, across a 1,000km stretch of the Rhine. In an age of increasingly tight European emissions standards, we can expect to see a growing call for vessels of this kind.
Still, it is easy to see why Prelude is the development garnering the most attention. Despite its significant heft, the facility is small in comparison with an onshore LNG plant. At around a quarter of the size, Prelude will benefit from lower operational costs and, Shell claims, a reduced environmental footprint.
"FLNG reduces the cost and environmental footprint of LNG development because there is no need for long pipelines to shore," explains Bounds. "There will be no compression platforms to push the gas to shore, near-shore works such as dredging and jetty construction, or onshore development such as building roads, lay-down areas or accommodation facilities."
Although the concept is only now becoming a reality, Shell has been working on the FLNG technology since the mid-1990s. Much of the necessary technology has already been used successfully onshore, but some has been modified in order for processes like liquefaction and offloading to occur away from land.
This has not been without its challenges. Located in the turbulent seas of Browse Basin, Australia, the facility will lack the natural stability found onshore. It needs to be able to withstand lashing waves, high winds and perilous tropical cyclones.
The engineers have responded with various ingenious design features. Running through the facility is a 93m-high turret, which will be anchored to the seabed by four groups of mooring lines. Towards the rear are three 6,700hp thrusters, two of which will function at any given time to turn the vessel out of the waves and wind.
There are also procedures and systems in place for operating in severe weather, including discontinuing offloading, stopping production and evacuating non-essential personnel.
"Safety of the FLNG facility has been paramount during its design, and its safety is on a par with modern offshore oil and gas facilities," says Bounds. "The size increases its stability. It has gone through extensive testing programmes and simulations to ensure it has the ability to remain connected and moored to the sea floor throughout all weather conditions."
Floating the concept
As Prelude edges towards completion, we might reasonably surmise that the facility is a sign of things to come. Shell has a number of additional key LNG projects in the pipeline, such as two potential liquefaction plants in western Canada, and a possible LNG import and regasification terminal at the Kakinada Deepwater port in India. The company has also indicated that Prelude is just the first of what will most likely be multiple FLNG projects.
Such developments are occurring against a backdrop of rising demand for LNG, with the market expected to surge from 240 million tons a year today to 430 million by 2025. This growth will be driven by expanding economies in China, India, South-East Asia and the Middle East, along with renewed demand in Europe and mounting interest in locations such as Vietnam.
"With so many competing supply projects, gaining access to the best LNG markets has become far more competitive as these supply projects compete for future market potential," says Bounds. "So, while we see robust demand growth in LNG, competition to supply that growth will also be strong. Supply projects with strong economics, credible developers and short development times will be advantaged."
Bounds feels that LNG is becoming an attractive choice for end users, pointing out that if people are given the ability to choose the energy source that best aligns with their values and needs, they will tend to pick sources that are cleaner and more sustainable.
"Our focus should be on cost-effective solutions that secure supply and, at the same time, address concerns on combatting climate change and air pollution," he explains. "We don’t have to make unnecessary trade-offs between growth and competitiveness, and health, environmental sustainability and energy security. An energy system with greater efficiency, more natural gas and a growing share of renewable energy makes a pathway available without this trade-off."
The Prelude FLNG facility – vast in size and vaster still in potential – is expected to fulfil these seemingly contradictory needs. We can be clear that as the market for LNG grows further, Shell will continue to respond with a raft of intriguing new ideas.
