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Analysts: Floating LNG Poised for Growth; Shell Inks Deal

The floating liquefied natural gas (FLNG) liquefaction business is expected to garner spending of $23 billion between now and 2016, according to analysts. Last week Shell Gas & Power Developments BV struck a deal to be a part of that activity.

The Royal Dutch Shell plc unit signed a master agreement with a consortium composed of Technip and Samsung for the design, construction and installation of multiple floating liquefied natural gas (FLNG) facilities over a period of up to 15 years, Shell said.

Shell and Technip-Samsung also signed a contract for execution of the front-end engineering and design (FEED) for Shell's 3.5 million metric ton/annum FLNG solution, which has the potential to place gas liquefaction facilities directly over offshore gas fields, precluding the need for long-distance pipelines and extensive onshore infrastructure.

The Shell "design one -- build many" approach to FLNG allows material repeatability gains to be captured during design and construction phases, the company said. After completing the FEED phase, Shell will examine aspects of each potential FLNG project in its portfolio before considering a final investment decision.

Last year Kathleen Eisbrenner, executive vice president for global LNG with Shell Gas & Power International, told NGI floating liquefaction could give the industry access to previously stranded gas supplies, for instance, far off the coast of Australia, where Shell has holdings. It also could eliminate some flaring of uneconomic gas that is associated with oil production (see NGI, Sept. 15, 2008).

"Strong gas prices have made monetizing stranded gas fields conceptually viable; delays and cost overruns on onshore liquefaction plants make the industry look at other options, and advances in technology make offshore liquefaction plants a potential solution to the bottleneck in LNG liquefaction," Citigroup analysts said last spring (see NGI, April 21, 2008). However, since then natural gas prices have decreased significantly, and some have questioned whether current economics make FLNG viable.

Longer term, the FLNG business is expected to garner billions in spending, according to a recent analysis by Douglas Westwood.

"The last 12 months have been difficult for the sector; however, any delays in project sanctioning have largely been attributed to the project structures and changes in upstream partners rather than any technology gaps. We continue to believe that vertically integrated majors will be best placed to assemble a project from the upstream elements through to liquefaction, transport and regas stages," the firm's Steve Robertson told the Commercializing FLNG Conference in Singapore last Tuesday.

"In many regions we are seeing that floating regasification units continue to be sanctioned and the various floating liquefaction systems are progressing well through the design and engineering process. Southeast Asia will be a key area of focus for the sector and it is clear that there are many players evaluating the technology with an intention to deploy. For some remote stranded gas assets it will be the only technically feasible option; for others there are additional benefits, too in terms of better flexibility, reduced lead times and even cost savings."

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