Shell's FLNG Breakthrough

by Tony D'Altorio

Shell's FLNG Breakthrough

by Tony D'Altorio, Investment U Research

Tuesday, June 28, 2011

Most Investment U readers are aware of a new technology, developed in the United States, that's transforming the global natural gas industry.

New technology that has made natural gas located in difficult areas economical to extract. And has resulted in a glut of natural gas in the United States along with sharply lower prices over the past two years.

Now, as pointed out by my IU colleauge David Fessler, a major event is about to occur in the liquefied natural gas industry.

Liquefied natural gas (LNG) satisfies 10 percent of global gas demand today. And that percentage is growing, making this is an event definitely worth revisiting...

Shell's Floating Liquefied Natural Gas Breakthrough

Royal Dutch Shell (NYSE: RDS.A) is developing a new technology for use in Australia. So far, the company has spent $500 million and 15 years' worth of research on its development.

This breakthrough - floating liquefied natural gas terminals - will enable Shell to recover natural gas from offshore fields that were previously considered uneconomical to develop. As mentioned in David's article, much of Australia's gas lies buried in offshore fields.

Shell's Floating Liquefied Natural Gas (FLNG) Prelude facility is certainly impressive.

  • It'll be the world's largest offshore facility, at 600,000 tons and six times larger than the largest aircraft carrier.

  • Prelude will begin service in 2016, moored approximately 125 miles off the coast of northwestern Australia, atop a major gas field in the Browse Basin.

Shell's general manager for FLNG, Neil Gilmour, says that the gas field contains more than 100,000 billion cubic feet of discovered, but undeveloped, gas. This is an astronomical number, and is equivalent to about five times U.S. annual natural gas consumption.

Shell believes that the Prelude field is just one of a number of giant offshore gas fields around the globe, waiting to be tapped by the right technology.

Shell estimates that globally, nearly 300,000 billion cubic feet of natural gas is sitting offshore. The company says this is an extremely conservative estimate, which excludes small- and mid-sized fields, and fields that could exist in the polar regions.

FLNG - The Future of The Global LNG Industry

These numbers highlight natural gas and LNG's potential to shape the world energy stage in the years ahead.

Most conservative estimates call for LNG demand to increase at a rate of five percent a year over the next decade. More aggressive estimates say a double-digit annual increase is possible. Either way, there's an enormous demand for gas, which makes LNG a growth industry worth investing in.

There are other companies besides Shell that realize the potential of FLNG technology. Its Prelude facility won't be alone for long.

Other companies are moving ahead with similar, albeit smaller, projects. For example, Petrobras (NYSE: PBR) and other companies are issuing tenders to three contractors to bid on engineering and construction for an FLNG project off the coast of Brazil.

Another believer in FLNG is Andrew Pearson from the energy research group Wood Mackenzie. Of Shell's Prelude, he said, "This is a key milestone in the development of the LNG business. This will change the business."

Robin West, Chairman of PFC Energy, goes even further. He thinks FLNG is the future of the global LNG industry. He believes that most planned LNG facilities will not be built and that the industry will move rapidly toward FLNG.

If so, Shell, with its lead over its peers, stands to benefit the most.

Especially if what Shell's Neil Gilmour envisions comes true...

He thinks the industry will follow the same path as the floating oil production ship business. From one ship in 1997, there are now some 150 of these ships deployed globally.

Look for the FLNG industry to follow a similar path of expansion in the decade ahead.

Good investing,

Tony D'Altorio

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