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Shell Optimistic About Future of 'Floating LNG'

It's too soon to tell whether exporting liquefied natural gas (LNG) from the Lower 48 or more LNG from Alaska to global markets makes economic sense. But if it does, Royal Dutch Shell would be game to potentially participate. More immediately, though, the major's LNG business is focused on efforts to develop floating liquefaction, which it calls floating LNG (FLNG).

"I am very excited about floating LNG and the potential for floating LNG in Shell's future," Kathleen Eisbrenner, executive vice president for global LNG with Shell Gas & Power International, told NGI on the sidelines of the 20th annual LDC Forum Midcontinent in Oak Brook, IL, last Monday.

"I don't know at this point what [FLNG] is going to cost. We finalized one basis of design for a large-scale facility, and we're in the process of finalizing our basis of design for a smaller-scale facility. We are currently out for bids on the larger facility, so probably in the February time frame we'll have a sense of what the actual real costs would be. But we're very optimistic that those costs are going to be realistic and reasonable in the current environment, competitive with land-based alternatives and open up a whole new realm of possibilities for LNG supplies."

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.

"After many years of the subject being taboo, floating LNG is one of the 'hot topics' in the oil field services industry today," wrote a group of London-based Citigroup analysts last spring (see NGI, April 21). "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."

One FLNG project Eisbrenner has in mind is "really exciting" and would reduce gas flaring, but she told NGI she can't say more about it yet. Offshore Australia would be an attractive area for Shell to roll out FLNG because of its reserves there, but Eisbrenner said the company does not have a particular geographic focus for FLNG efforts.

Before joining Shell Eisbrenner was CEO of Excelerate LNG, a developer of offshore LNG regasification terminals in the Gulf of Mexico and off the U.S. East Coast (see NGI, May 26).

"We're really trying internally to get all our [exploration and production] colleagues juiced up about this to look all over the world," she said. "It just so happens that we have a very fortunate position offshore Australia, Shell does, that's potential-rich, so it drives us to look there but definitely we're looking all over the world."

One day U.S. gas producers could be looking all over the world for markets for their gas. That is if early rumblings about a domestic need for liquefaction capacity turn out to be true and a plant actually gets built in the Lower 48 or in Alaska, where one liquefaction plant has been in operation for decades (see NGI, May 19).

Last month Cheniere Energy Marketing Inc. asked the U.S. Department of Energy for permission to export on a spot market basis LNG that had previously been imported and stored at the Sabine Pass LNG Terminal in southwest Louisiana (see NGI, Sept. 1a). "That's a good first indication [of interest in exporting LNG from the United States], and then we'll watch it and see if it makes sense," Eisbrenner said of Cheniere's intentions.

She readily conceded that there would be political obstacles to development of LNG export terminals, but these would be no more insurmountable than those that were overcome to build the panoply of LNG receiving terminals the United States now has (So far this year five regasification terminals have been commissioned: three in the United States, one in Brazil and one in Argentina, said Darryl Kennedy of Total Gas & Power North America Inc. at the LDC Forum, adding to a 40.9 Bcf/d surfeit of global regasification capacity while the industry awaits the completion of delayed liquefaction projects).

Eisbrenner noted Shell's investment in North American regasification capacity at Altamira, Mexico (see NGI, Oct. 23, 2006); Baja California, Mexico (see Daily GPI, Sept. 2); and Elba Island in Georgia (see NGI, Sept. 8). "We're confident and happy in the investment that we've made in terms of an import investment in North America," she said of the projects, noting that lessons learned from these projects could be applied to domestic liquefaction development.

Still, it remains to be seen whether Alaska's efforts to build a long-haul pipeline to tap North Slope reserves will come to pass and spawn an offshoot pipeline and LNG liquefaction project (see NGI, Sept. 1b); or if burgeoning gas shale production will grow enough to support exports as some producers believe it will (see NGI, Aug. 4).

"We've made no decisions about exports or contemplating exports, but would we contemplate exports if market forces are appropriate? We'll certainly consider it," Eisbrenner said. "Having said that, I think the United States is much better off for all the investment that has been environmentally, appropriately, legally approved and then made on the import side."

Utilization of the world's regasification capacity could soon get a boost from efforts of Shell, Russia's Gazprom and others. Shell is a partner along with OAO Gazprom Mitsui and Co. Ltd. and Mitsubishi Corp. in Sakhalin Energy, developer of the Sakhalin II project, which includes Russia's first LNG liquefaction plant. It is about to come on stream and will be capable of producing LNG in amounts equivalent to 8% of world LNG demand, according to Shell's website. Eisbrenner said the LNG project should be completed by the end of this year and producing LNG cargoes next year. "Russian LNG might be the next incremental LNG to hit the market," she said.

"I think Russian LNG is very important in the future. That's just the beginning; that's trains one and two. Hopefully we'll be looking at a third train at Sakhalin."

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