Woodside considers floating LNG for Browse

Australian oil and gas major, Woodside Petroleum (ASX WPL) has moved a step closer to using a floating LNG plant to process its Browse natural gas resources.

The company announced that it had entered an agreement with Shell to look at using Shell’s Floating LNG (FLNG) technology to develop its Browse project resources. Just last month, Woodside announced that it had canned an onshore processing LNG plant at James Price Point in Western Australia, because it was cost prohibitive.

Shell is one of the joint venture partners in the Browse LNG project, alongside Woodside, BP, Japan Australia (Mimi Browse) – a joint venture between Mitsubishi and Mitsui and PetroChina. Shell is currently developing a floating LNG plant, estimated to cost around $12 billion, to process gas from its Prelude project in the same region as Browse.

The FLNG facility is one quarter of the size of an equivalent plant on land, but will still be 488 metres long and 74 metres wide, which when fully loaded will weigh around 600,000 tonnes, or roughly six times as much as the largest aircraft carrier. 260,000 tonnes of that is steel, five times more than was used to build the Sydney Harbour Bridge.

Woodside CEO Peter Coleman said FLNG had the potential to commercialise the Browse resources in the earliest possible time frame and to further build the company’s long-standing relationship with Shell. Shell’s FLNG technology allows the company to design one facility and then reproduce it many times for different offshore LNG projects. While the first FLNG facility is expected to cost around $12 billion, the second and subsequent facilities could be much cheaper.

That could allow Woodside to achieve much higher returns, and as Mr Coleman said, “Provides the opportunity for Western Australia to become an industrial, operational and technology centre of excellence for floating LNG worldwide.”

Foolish takeaway

Onshore LNG plants are hugely expensive, with Chevron’s Gorgon project estimated to cost $52 billion. Santos Limited’s (ASX: STO) Gladstone LNG is expected to cost US$18.5 billion, while Origin Energy’s (ASX: ORG) Australia Pacific LNG has seen costs blowout to $24.7 billion. FLNG offers the ability to process offshore gas for much lower costs – if it works according to plan. That should be good news for shareholders.

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