June 06, 2011
Most Expensive Offshore Ship For LNG Production
A post by Big Gav at The Oil Drum reports on a decision by Shell to spend $12.6 billion to build a ship that will float above an Australian offshore natural gas field and liquify natural gas for shipment. The field is too far from the coast to have pipelines built to bring the natural gas onshore.
My take: This ship illustrates the massive amounts of capital and engineering talent available to extract fossil fuels (about $490 billion total capital spending by oil companies in 2011). Offshore floating LNG production ships seem to be unrivaled in costs for a single energy extraction device. Even a nuclear power plant won't cost that much (caveat: nuclear power cost estimates cover a wide range).
The costs of LNG production ships also dwarf the already very expensive deepwater drilling rigs. To put them in perspective in 2001 the Petrobras P-36 rig, then the world's largest, sunk and its insured value at the time was $500 million. In 2010 the Deepwater Horizon was insured for $560 million. Construction costs for the deepest water drilling rigs peaked at $800 million and then declined by about a quarter.
Nothing else offshore seems to rival this ship in size or cost. $12.6 billion builds a ship 6 times heavier than the world's largest aircraft carrier (which would be the 102,000 tonne Nimitz carriers). The LNG ship even beats carriers on cost. While the first Ford class carrier will cost almost $12 billion that includes a few billion of research and development that is for innovations for the class. Later Ford class carriers are supposed to cost $4-6 billion less. So you can buy 2 nuclear-powered aircraft carriers for the cost of one LNG production ship.
Quite a terrorist target, it is.
So what is 3 trillion cubic feet of natural gas worth? $5 per thousand cubic feet seems plausible. So maybe $15 billion, which seems too small given the cost of the ship. But the liquids might be a major portion of the revenue stream. Plus, the Asian market prices might be higher.
A substantial fraction of the natural gas gets used to cool the rest of the gas to liquid form. So I'm not so clear on the economics of this deal.
Terrorists tend to want to kill lots of people. Though I wonder at the security for this ship. Will it have patrol boats around it?
"The Prelude FLNG facility will produce at least 5.3 million tonnes per annum (mtpa) of liquids: 3.6 mtpa of LNG – enough to satisfy around 90% of Hong Kong’s annual natural gas needs – 0.4mtpa of liquefied petroleum gas and 1.3mtpa of condensate (equivalent to 35,000 bbl/d)."
35,000 bbl/day = 1.x billion a year in condensate alone.
I think the is is a pilot project for the 140tcf in "stranded gas". One big advantage ... no greenies picketing the site.
"They also came up with the idea of tapping the cold of the ocean depths by pumping water to help cool the gas, avoiding the need to for extra equipment on deck.
“For LNG you need a cooling medium, like in your fridge at home,” says Neil. “We’ve invented a system to take water from deep in the ocean.”
An assembly of eight one-metre diameter pipes will extend from the facility to about 150 m below the ocean’s surface. It will deliver around 50,000 m3 of cold seawater each hour. This helps to cool the gas from below the facility, saving deck space."
Alternatives for stranded gas include production of ammonia, methanol, dimethyl ether, and Fischer-Tropsch hydrocarbons.
The OTEC-like deep water scheme is interesting!
Paul, I wonder if it would be worthwhile to build an ethylene cracker on a ship to produce plastics?
Probably not with all the Shale Gas in the US.
Ethylene, per unit mass, is an order of magnitude more valuable than natural gas. So I expect if they can separate the ethane it's worthwhile to do so.
Yes, 1.278 billion barrels per year of condensate with the Asian market to sell it to. That's enough to pay the interest on the capital investment.
25 years of 1.4 billion in revenue as condensate is worth as much as oil.
"High oil prices and strong demand have pushed LNG spot prices in Asia above $US13.00 per million British thermal units (mmBtu), more than $US4 higher than British gas prices."
So ... maybe $27 billion with of LNG. I don't know what LPG is going for ...
Condensate is also the driver behind Qatar's NG plays. LNG sells close to cost, like the naptha byproduct of kerosene production in the early rock-oil efforts.
I wonder about the economics of local use of natural gas in the Middle East. First off, it can be used to generate electricity. Second, it can be used as an input into the local petrochemical industry. Produce N fertilizer and sell the fertilizer to Asia. Ditto plastics. Some Middle Eastern nations are growing their petrochemicals industries. Not sure if that growth is government-subsidized though.