Worlds first floating liquefied natural gas (FLNG) Platform

By Chris Summers

Shell has unveiled plans to build the world's first floating liquefied natural gas (FLNG) platform. The 600,000-tonne behemoth - the world's biggest "ship" - will be sited off the coast of Australia. But how will it work?

Deep beneath the world's oceans are huge reservoirs of natural gas. Some are hundreds or thousands of miles from land, or from the nearest pipeline.

Tapping into these "stranded gas" resources has been impossible - until now.

At Samsung Heavy Industries' shipyard on Geoje Island in South Korea, work is about to start on a "ship" that, when finished and fully loaded, will weigh 600,000 tonnes.

That is six times as much as the biggest US aircraft carrier.

By 2017 the vessel should be anchored off the north coast of Australia, where it will be used to harvest natural gas from Shell's Prelude field.

Once the gas is on board, it will be cooled it until it liquefies, and stored in vast tanks at -161C.

Every six or seven days a huge tanker will dock beside the platform and load up enough fuel to heat a city the size of London for a week.

The tankers will then sail to Japan, China, Korea or Thailand to offload their cargo.

"The traditional way of producing gas offshore was through pipelines. You brought gas up to a platform and piped it to the 'beach'. That is the way it's done in the North Sea," said Scotsman Neil Gilmour, Shell's general manager for FLNG.

'Cyclone alley'

But the Prelude gas field is 200km (124 miles) from Western Australia's Kimberley Coast and there are no pipelines there to be used.

Johan Hedstrom, an energy analyst in Australia with Southern Cross Equities, told the BBC: "The FLNG concept is an elegant solution because you don't need so much fixed infrastructure.

"You don't need the pipeline or the onshore refinery and when you run out of gas you can just pull up stumps and go to the next field."

Mr Gilmour said Shell had to overcome a "raft of technical challenges", ensuring for example that the vast amount of equipment on board would work in choppy seas.

The Prelude field is in the middle of what is known as "cyclone alley", an area prone to extremely stormy weather.

But Mr Gilmour said the vessel had been built to withstand category-five cyclones and even a "one-in-10,000-years' storm" producing 300km/h (185mph) gusts and 20m-high (65ft) waves.

The double-hulled vessel is designed to last 50 years.

When the Prelude field is exhausted, in 25 years' time, it will be completely refurbished and packed off to start work on another field off the coast of Australia, Angola, Venezuela or wherever.

Mr Hedstrom said: "FLNG is a neat way of going forward. The way that energy prices are going it does look like a good industry to be in and I think they could make a lot of money out of it."

The price of LNG has risen markedly as demand has increased.

LNG currently sells for $14 per one million British thermal units in Japan, where the price was boosted by the tsunami, which cut the production of nuclear power.

The project, estimated to cost between $8bn (£5bn) and $15bn (£9.5bn), could provide 3.6 million tonnes of gas a year.

Flaring off

Nick Campbell, an energy analyst with Inenco, said Shell's move into FLNG was a "smart move".

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"Shell are positioning themselves in an emerging market, not just in China - where gas usage has increased by 20% - but in India, which is also increasing its demand," he said.

The project is expected to generate 12 billion Australian dollars (£8bn) in tax revenues for the Australian federal government and could benefit their trade balance by 18 billion Australian dollars over the life of Prelude.

Australia's Minister for Resources and Energy has welcomed the Prelude project, drawing attention to the reduced environmental footprint as compared with a land-based scheme.

But there has been opposition from environmentalists. Martin Pritchard from Environs Kimberley says he is concerned about the potential for "oil leaks and spills".


































The Prelude field is 200km from the spectacularly beautiful Kimberley Coast

WWF Western Australia, meanwhile, argues that the underwater wellheads and pipelines will harm the tropical marine environment, and estimates the project will emit more than two million tonnes of greenhouse gases per year.

The gas raised from the seabed is purified during the process of liquefaction, and waste products will be flared off. This week the Australian government said it would tax carbon emissions from major polluters at A$23 (£15) per tonne.

But Mr Gilmour says the Prelude project could be the first of several. Shell has already identified the Sunrise gas field in the Timor Sea as having potential for FLNG.

The ship, whose first section will be laid in 2012, has no name. Shell normally refers to it merely as a "facility".

"There are only four or five dry docks globally which could have built this facility and there are certainly no yards in the UK large enough," says Mr Gilmour.

He has been to Geoje Island and, speaking in a broad Ayrshire accent, he said of Samsung's yard: "It's an extraordinary place.

"It's just a phenomenal yard. Samsung is very hi-tech, world class. There are going to be some very spectacular images coming out of there during the building process."

The World's Biggest Ships

• The Seawise Giant was the biggest ship ever built. Fully laden it weighed 657,000 tonnes. It was scrapped in 2009
• Shell refers to its FLNG platform as a "facility" rather than a ship - fully loaded it will weigh 600,000 tonnes
• Daewoo are building 10 Triple-E container ships for Maersk. Weighing 165,000 tonnes, each can carry 18,000 containers
• The Titanic, in comparison, weighed a measly 52,000 tonnes. It sank on its maiden journey in 1912

More on This Story

Related Stories

• Floating plant for Asian gas need 20 MAY 2011, BUSINESS
• Australia to tax worst polluters 10 JULY 2011, ASIA-PACIFIC
• Shell sets out new growth targets 15 MARCH 2011, BUSINESS

Euro Crisis in ‘Uncharted Territory’ Menaces Eastern States

By Agnes Lovasz - Jul 14, 2011 11:51 AM GMT+0100

The European debt crisis has entered “uncharted territory,” rekindling concern it will spread eastward through banking and trade links, according to the European Bank for Reconstruction and Development.

Italy’s Unicredit SpA (UCG) and Intesa Sanpaolo SpA (ISP), two of eastern Europe’s biggest lenders, fell to the lowest in more than two years July 11 as political infighting threatened to delay efforts to cut thebudget deficit in the country with Europe’s largest debt burden. European leaders this week failed to agree on a new aid package for Greece.

“We are in uncharted territory,” Erik Berglof, chief economist at the London-based EBRD, which invests in eastern Europe and Central Asia, said in a July 12 interview. “The source of the contagion seems to be in worse shape.”

The EBRD led efforts to persuade western banks, with 76 percent of the eastern European market, to maintain their commitment to the region when credit dried up in 2008. The debt crisis’s expansion to Italy, Europe’s fourth-largest economy, would increase the risk that lenders facing losses at home would curb lending in the east, stalling the region’s recovery.

Europe’s debt woes have entered a new phase, and policy makers must come up with a “clear” response to stop the contagion that threatens the euro, the European Central Bank’s incoming president, Mario Draghi, said yesterday in Rome.

Resisting the Pressure

Ireland on July 12 joined Portugal and Greece as the third euro-area nation to have its credit rating reduced to below investment grade. All three received bailouts from the EU and theInternational Monetary Fund.

“The whole effort at trying to resolve the euro zone crisis has been focusing around building a defense between the three countries that already have programs with the EU and the IMF andSpain, possibly Italy,” Berglof said. “There’s now concern about the ability of this wall to resist the pressure.”

Yields on Italy’s 10-year bonds reached an intraday high of 6.02 percent on July 12, widening the spread over German bunds to a euro-area record of 318 basis points. The yield was at 5.69 percent as of 12:43 p.m. today in Milan. Spanish bond yields soared to 6.31 percent on July 12, the most since the euro was created. They traded at 5.91 percent today.

Spanish Finance Minister Elena Salgado said yesterday in Madrid that her country may need deeper spending cuts next year to stave off contagion. Fitch Ratings cut Greece’s credit rating to the lowest for any country yesterday, citing the lack of a “fully funded and credible plan” to reduce debt.

Markets ‘More Pessimistic’

“Suddenly the markets seem to have taken a more pessimistic view on the possibility of resolving the euro zone crisis,” Berglof said. “The potential direct impact is on southeast Europe, and the indirect impact is through banks in western Europe and ultimately also through growth in the euro zone,” the biggest market for eastern European countries.

While southeast Europe is the area that’s most at risk, given its proximity to Greece, an escalation of the crisis would hurt more western European banks, with implications for all of the EBRD’s recipient nations, Berglof said.

Greek bank units in the Balkans, including Bulgaria and Romania, received 630 million euros ($871 million) in loans from the EBRD in October. The EBRD expects the Balkans to expand 1.9 percent this year, half the pace of the rest of central and eastern Europe.

Almost a third of Bulgaria’s banks and 12 percent of Romania’s are owned by Greek parents such as Piraeus Bank SA and Alpha Bank SA. Greek lenders own 15 percent to 25 percent of the banks in the non-EU states of Macedonia, Serbia and Albania.

No ‘Spillovers’ Yet

“We spent a lot of energy trying to build a wall against spillovers into southeast Europe,” Berglof said. “So far we don’t see signs of spillovers in that part of the world. We’re not saying this is the main scenario, just something we have to be worried about.”

The biggest threat is that western European banks, which have increased loans to businesses and consumers this year, will rein in that financing, derailing the recovery, Berglof said.

The EBRD in May raised its 2011 economic-growth estimate for the 29 countries where it invests to 4.6 percent from the 4.2 percent forecast in January. It expects growth to slow to 4.4 percent next year.

While the largest western banks pledged to stay in eastern Europe at the height of the credit crunch, they reduced lending by 15 percent over the last two years, according to IMF data.

“Foreign banks have been quite restrictive with credit, and it’s only recently that they are restarting lending again,” Berglof said. “We are concerned that this will now contract again.”

The ultimate level of contagion would be if western banks had difficulty supporting their eastern units, he said.

“What’s happening now, if it’s sustained, it will weaken for instance Italian banks’ ability to lend to the region, and that’s something that we are, of course, concerned about,” Berglof said. “The funding from parent banks has come down and these subsidiaries are fully contained in the local markets, but there still is a risk of spillovers.”

A Huge Energy Opportunity for the Next 25 Years

By Dan Dzombak | More Articles 

July 1, 2011 | Comments (17)

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Natural gas production has been taking off across North America, requiring new pipelines to move that gas from where it's produced to where it's consumed. A recent study from an industry trade group has concluded that spending on pipelines must double over the next 25 years. Read along, and I'll explain where the money will be spent, why, and how you can profit.

NatGas!In the past few years, new technologies and cheaper costs allowed producers to access gas trapped in parts of the U.S. previously considered unreachable. As more companies have tapped these unconventional plays, U.S. natural gas production has risen roughly 25% over the past five years, to 78 billion cubic feet per day, or Bcfd for short. Experts expect production to keep rising over the next 25 years, to 113 Bcfd by 2035.

All this new gas needs a lot of new pipelines. According to a new study by the Interstate Natural Gas Association of America (INGAA) Foundation over the past 10 years, companies spent an average of $4.6 billion per year to build 14,600 miles of expansion pipeline. For the U.S. and Canada to maintain efficient, well-functioning natural gas markets, INGAA has concluded that we'll need to spend an average of $8.3 billion per year between now and 2035. That doesn't include the $1.3 billion a year of pipeline infrastructure that oil production will likely need. Combine these two, and at $9.6 billion a year on infrastructure, that's more than a 100% increase in spending for the next 25 years.

INGAA projects that we'll need 43 Bcfd of expansion mainline capacity from 2010 to 2035. Besides major regional lines, smaller pipeline laterals will need to connect new power plants, storage fields, and processing facilities to the natural gas transmission network, with expected investments of $5.7 billion per year. New gathering system pipelines will also be required to connect new producing wells to processing facilities and pipelines, with an expected investment of $2.6 billion per year.

Remember the Gold RushNow, some would have you think that you can best play this opportunity by investing in major pipeline operators Kinder Morgan Partners (NYSE: KMP  ) or Energy Transfer Partners(NYSE: ETP  ) . I think there's a better way. Remember the California Gold Rush: The miners didn't get rich, but the people who sold the picks and shovels sure did. Who'll make the most money during this pipeline rush? Enter the folks who make pipes -- or, if you want to be all formal, "oil country tubular goods," or OCTG.

Put that in your pipeThere are many pipe makers to choose from, but a few stand out.

U.S. Steel (NYSE: X  ) is the largest player in the North American OCTG market, thanks in part to its 2007 acquisition of Lone Star Technologies, the leading producer of welded OCTG in North America. But oil and gas pipes only represent about 15% of U.S. Steel's business. There are better ways to take advantage of the increase in pipelines.

Ameron (NYSE: AMN  ) specializes in molded fiberglass pipe and fittings. The oil and gas processing industry uses these products as an alternative to metal pipes, since metal pipes corrode over time. While Ameron won't be making the massive pipes transporting natural gas, it will have a hand in the refineries and oil platforms needed to get that gas to consumers. Ameron's fiberglass pipes are also used in service stations, and the company would benefit from a shift toward more natural gas vehicles and service stations. The pipe group makes up 44% of Ameron's business, with a water transmission group making up 43%, and a concrete and aggregates group making up the last 13%. (Editor’s Note: On Tuesday, after this article was published, National Oilwell Varco announced it was acquiring Ameron for $85 a share, a 28% premium to Ameron’s closing price on July 1.)

That said, I'm most interested in Tenaris (NYSE: TS  ) , a global producer of OCTG products based in Luxembourg. It's well-positioned to capitalize on the pipeline boom, since tubular products make up 87% of Tenaris' business. A huge chunk of that comes from North America:

Tenaris is not particularly cheap. Its $1.2 billion in earnings over the past 12 months give it aP/E ratio of 22, in line with peer OAO TMK. (U.S. Steel was not profitable this past year.) However, Tenaris' direct exposure to the OCTG business should allow its investors to best cash in on the pipeline boom.