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Prelude shows the way for stranded gas

Although technically not the world’s first operational FLNG barge, it sets new standards in scale

The case for offshore gas fields too small for conventional development to make economic sense has received a boost through the continued production ramp-up at Australia’s Prelude,  the world’s largest FLNG barge

FLNG is expensive but currently the only viable option for stranded gas

Prelude received its go-ahead in May 2011, with capex of $10.8 – 12.6 billion, on our estimate. Whilst Shell has not released official capex figures, assuming the cost per million tonnes per annum (mtpa) of LNG capacity for the part-turnkey project to be broadly similar to other approved LNG projects at the time, we expect capex to be around $3-3.5 billion per mtpa.

This would put Prelude in a much lower capex bracket than neighbouring greenfield LNG projects such as the bold but technically complex Ichthys LNG, which ended up costing $45 billion, up 32% on the initial budget of $32 billion set in 2012. This is not to say that Prelude may not have had its own share of cost increases – when first touted, the project’s capex was pegged at roughly $5 billion

In our view, projects such as Ichthys were not only built out of profit motivations. Ichthys was also given the go-ahead to enhance energy security for Japan through the proxy of the project’s most significant shareholder INPEX. Prelude’s only purpose, on the other hand, is to make smaller offshore gas fields commercially viable.

A world first, kind of…

The Prelude project is mainly developed by Shell for its Prelude and Concerto offshore gas and condensate fields in the Timor Sea, offshore Western Australia. It was constructed at Samsung Heavy Industries on Geoje Island in South Korea and placed above the Prelude offshore gas field, roughly 475km away from the Australian coastal town of Broome.

Prelude is often considered as the first FLNG development in the world. This is true, but not in the sense of being the first FLNG barge in operation. This crown goes to Petronas’ FLNG Satu, which shipped its first cargo aboard the Seri Camellia (IMO 9714276) on 1st April 2017, our data shows. Instead, Prelude was the first FLNG concept that received its Final Investment Decision (FID) by its developers.

So, although only being second to FID, PFLNG Satu beat Prelude to first commercial cargo. However, Prelude will produce at an entirely different scale to FLNG Satu, having 3 times the LNG capacity. According to our data, the Indonesian barge has also seen a continuous downward trend in production since October 2018, necessitating a relocation from its original site at the Kanowit gas field offshore Bintulu to the Kebabangan cluster of minor gas fields, 90km offshore Sabah.

Shell learned to be cautious

Earlier in February, Shell Australia chair Zoe Yujnovich indicated Shell is taking its time with the commissioning process.

Shell cuts first steel for the facility’s substructure in October 2012, with the completed vessel to be towed to site in Australia by end-2015 for first production as early as 2016. However, quality control checks in 2015 discovered issues with the ballast water tank coating, which delayed the departure of the barge from South Korea to site in Australia by what at the time was thought would be up to 7 months and ended up being a year

Prelude received its cooldown cargo from Peru’s Pampa Melchorita plant via the Methane Mickie Harper (IMO 9520376) on 5th October 2018, according to our data. However, Shell evidently did not rush bringing Prelude on-stream as it took more than 8 months to put the barge’s first commercial LNG cargo onboard the Valencia Knutsen (IMO 9434266) on 10th June this year, our data shows.

Shell’s considered approach seems to be paying off

Since then, initial evidence suggests that the energy major’s considered approach is paying off. The FLNG barge is currently preparing for its 5th LNG export. The Pan Europe (IMO 9750244) is currently in approach and scheduled to dock at Prelude’s massive hull on 7th August. Weather and sea swell permitting, we thus expect the barge to load another LNG cargo around 8th August. 

Given that Prelude’s annual capacity lies between 45 and 55 LNG cargoes (depending on LNGC capacity), it is approaching 80% capacity utilisation on an annual basis at a stable rhythm of one cargo every 10 days.  

The world’s largest FLNG barge, therefore, is on track to prove the FLNG concept at a scale equivalent to an onshore LNG train, which is excellent news for isolated small offshore gas fields the world over. Although still considerably behind FLNG Satu’s cumulative production, Prelude will be moored on location until at least 2041, after which it is due an overhaul. Plenty of time to catch up.