Floating on Liquid Natural Gas

It’s easy to waste energy getting wound up about politicians, thieves, cheats, and hypocrites. But there’s nothing new under the sun when it comes to powerful people using the authority of the State or Crown to steal other people’s money. In the meantime, the real world rolls on, and to roll, it needs energy. Enter Australian liquefied natural gas (LNG).

BHP Billiton, ExxonMobil, and Shell are all in the news recently with long-term off-shore LNG plans. Such is life for an energy major. When you are continuously selling your most valuable asset, you have to continuously replace it. Major energy companies are on a never-ending search for long-lived energy assets they can recover and produce economically, even when underlying oil and gas prices are variable.

It’s not an easy task. But what’s amazing is how much money the oil and gas majors can spend finding and producing energy…while still making money! Take the idea of floating liquid natural gas (FLNG). We first heard of the idea in 2011 at the Offshore Technology Conference in Houston, Texas. It sounded absurd. Why?

Imagine building a ship 500 metres long and 75 metres wide and crewing it with over 200 people. You park it off-shore over 12 sub-sea gas wells. You drill for the natural gas and when you find it, you liquefy it off-shore. That means cooling it to -162 degrees Celsius and shrinking the volume of the gas by 600 times to turn it into a liquid. From the off-shore platform, the LNG is loaded directly into custom tankers and shipped to the buyer in Tokyo, Shanghai, or Korea.

It all seems incredibly challenging, from a technical perspective, and also risky. What about typhoons? What about rough seas? What about the Deepwater Horizon accident?

Yet in May of 2011, the board of Royal Dutch Shell made the decision to go ahead with its Prelude FLNG project in the Browse Basin. The facility, when finished, will be six times larger than the world’s largest air-craft carrier. It will contain enough steel to build five Sydney Harbour Bridges. And there it will sit for 25 years, producing 3.6 million tonnes of LNG per year, as well as condensate (‘wet’ gasses like butane and methane).

Off-shore Oil and Gas Basins of Northwest Australia

Off-shore Oil and Gas Basins
Source: Geoscience Australia

Since the Prelude project is actually off and running, it’s less of a shock that BHP and ExxonMobil are proceeding with their own FLNG project in the Carnarvon Basin. The firms are 50/50 partners in the Scarborough gas field. The FLNG project aims to produce seven million tonnes of LNG per year for 35 years, or about 10 trillion cubic feet of gas over the lifetime of the asset.

Like Shell’s Prelude project, the Scarborough project won’t require pipelines or extensive on-shore development costs. And both projects are essentially technology solutions to energy problems. As better technology increases the recoverability of oil and gas, projects like this move from science-fiction fantasy to reality. Probably.

Dan Denning
for Markets and Money

Join me on Google Plus

From the Archives…

Why a PlayStation and Mining Technology Have More In Common Than You Think
29-03-13 – Sam Volkering

Who Cares About The Crisis in Europe?
28-03-13 – Nick Hubble

Trade the Market Like a Stoic Philosopher
27-03-13 – Murray Dawes

Why Watching Europe is Paramount
26-03-13 – Murray Dawes

Inflation: When You’re In the Government’s Sights
25-03-13 – Nick Hubble

Dan Denning examines the geopolitical and economic events that can affect your investments domestically. He raises the questions you need to answer, in order to survive financially in these turbulent times.

Leave a Reply

Your email address will not be published. Required fields are marked *

Markets & Money