Last week, we looked at Europe’s rush to build floating storage and regasification units (FSRUs) to import liquified natural gas (LNG) into Europe (here). Of course, Europe is not alone and we have highlighted how 2023 will be the year that Europe and China will both be competing for LNG supplies. Indeed, Hong Kong will start operation of the world’s largest FSRU later this year. This is MOL’s Challenger, which will be renamed Bauhinia Spirit when it commences gas supply to Hong Kong’s power stations. Challenger has a storage capacity of 263,000 cubic metres, measures 345.5 metres long, and is being upgraded with regasification capacity of 800 million standard cubic feet (22.64 million cubic metres) per day at Keppel Shipyard in Singapore.
As demand for LNG hots up, numerous offshore projects are being fast-tracked to take advantage of high prices. The infrastructure to receive the LNG is being installed at a pace that few suspected was possible before the Russian invasion of Ukraine. But who is adding new LNG supply?
More floating LNG
We have long been champions of floating LNG as a quick and effective solution for the development of offshore gas fields, especially in deep water, and high LNG prices mean this technology is rapidly maturing. Petronas and ENI have demonstrated the effectiveness of these massive vessels in Malaysia and Mozambique, respectively. Operating in more than 2,000 metres of water, ENI’s Corul Sul is the world’s first deep-water FLNG unit, with an estimated project cost of US$8 billion; it began production last year off the island of Pemba supported by a trio of Turkish-built berthing tugs.
Perenco has also shown the effectiveness of treating gas via conventional platforms in shallow water and then liquefying it on a nearby FLNG vessel, Hilli Episeyo, off Cameroon. BP’s Greater Tortue Ameyin project off the coast of Senegal and Mauritania also uses a similar methodology, with the gas being treated on a conventional FPSO and then piped to an FLNG vessel moored behind a specially constructed breakwater in shallow water, where LNG carriers can load their cargoes in shelter. BP’s FLNG facility is designed to provide 2.5 million tonnes of LNG per annum and is scheduled to begin first cargo deliveries in the second half of this year after force majeure delays during the Covid pandemic.
Therefore, it is no surprise to see Petronas approve investment in its third FLNG project, the shallow water ZLNG FLNG project in Sabah, East Malaysia, costing what Upstream estimates as a US$2 billion price tag. This facility will be the first nearshore FLNG in the world, as well as the third floating LNG plant to be constructed for offshore gas fields in Malaysia.
ZLNG will have a minimum production capacity of two million tonnes of LNG per annum. It is scheduled for completion in 2027 and is located in a protected bay to maximise production uptime. There have been rumours that Petronas was even considering a fourth FLNG to develop its deepwater gas discovery off Gabon, Boudji in 2,800 metres of water.
ENI gets more Algerian gas
Milan-headquartered and Italian-government controlled ENI is also scrambling to provide more gas to European markets and to its home market of Italy in particular. Italy previously imported 20 billion cubic metres of gas from Russia in 2021. In April last year, as sanctions bit, the company reached an agreement with Algeria to increase the gas exports via subsea pipeline to Italy from the nine billion cubic metres sent in 2022 to 15 billion cubic metres this year, and further up to 18 billion cubic metres in 2024.
Algeria is joining Norway as a near neighbour of the EU, which is aggressively seeking to ramp up exports to the bloc to replace embargoed Russian supplies. Indeed, offshore Norwegian producers were able to deliver 122 billion cubic metres of gas in 2022, and Norway expects to produce similar amounts this year. But Norway’s production has hit a plateau and piped gas alone is not enough to meet European needs.
LNG provides the answer.
Italy’s FSRU bonanza
Italian grid operator Snam, which is controlled by the Italian state, bought three LNG vessels in 2022. Snam plans to convert these into FSRUs for service in Italy. The company already owns a regasification terminal in Panigaglia near La Spezia, and is a 49 per cent shareholder in OLT, a floating regasification unit off the coast of Livorno, as well as holding a stake of about 7.5 per cent in the Adriatic LNG plant.
Last year, Snam purchased the Golar Tundra FSRU with a storage capacity of 170,000 cubic metres and an annual regasification capacity of five billion cubic metres of gas. The terminal will be located in Piombino in northern Italy, close to the industrial areas near Milan and Turin where Italian gas consumption is highest. The Piombino regasification terminal is due online in spring 2023.
The second unit, the 2015-built BW Singapore, will be deployed in Ravenna on the Adriatic coast, where operations are scheduled to commence in the third quarter of 2024. For service in Sardinia, Snam purchased Golar Arctic, with a storage capacity of 140,000 cubic metres of gas, for installation near the port area of Portovesme in the province of Cagliari.
But where will Snam find the LNG?
ENI advances in Congo
Whilst its sister company Snam has been buying FSRUs for deployment in Italy, state-controlled ENI has been moving ahead with ambitious plans to increase its own FLNG production in Africa.
Last year, ENI fast-tracked an FLNG unit in the Republic of Congo to provide 600,000 tonnes of LNG per year for export, using its recently acquired Tango FLNG unit. ENI bought the unit from Exmar in August for around US$700 million and is now preparing the unit for immediate production in shallow water near Pointe Noire. First production is due later this year.
Winner is Wison, Tango builder
Then, last month, Upstream reported that just before Christmas, ENI awarded Chinese contractor Wison Heavy Industry the engineering, procurement, construction, installation and commissioning contract for a second FLNG vessel for service in the Republic of Congo. Wison had previously built the Tango FLNG for Exmar.
This second FLNG will be a newbuild capable of producing 2.4 million tonnes of LNG per annum on a 380- by 60-metre hull with storage capacities of 180,000 cubic metres of LNG and 45,000 cubic metres of liquefied petroleum gas (LPG), the publication reported.
ENI hopes to be exporting three million tonnes of LNG from the Republic of Congo by 2025. Gas feedstock for the FLNG project is coming from Eni’s Marine XII block, which contains the Nkala, Minsala, Nene and Litchendjili gas fields.
Some of the gas will be sent to local power stations, but most will go to Italy and Europe. What is the point of having a state-controlled national champion if it cannot help in a gas crisis?
Chevron plans Israeli FLNG
Chevron is joining the FLNG fray in the Mediterranean and has begun a bidding process with Asian shipyards for engineering studies on a potential five million tonnes per annum FLNG vessel to boost production from the Leviathan gas field located in 1,000 metres of water offshore Israel. Chevron acquired operatorship of the field when it purchased Noble Energy in 2020.
Leviathan and the neighbouring Tamar field are currently in production and gas is exported by pipeline to Israel, Jordan, and Egypt. However, the next phase of development calls for a significant ramp-up in output. The capacity of Chevron’s planned Leviathan FLNG vessel would mean it is the second largest in the world, behind Shell’s Prelude vessel in Australia.
Shell has another fire on Prelude and another shutdown
Note that when we are talking about excellence in FLNG, we did not mention Shell. There’s a reason for that omission. When we focused on the luckless investors in The Metals Company as the company dumping bad news into the market just before Christmas for the second time (here), we missed a much bigger thud.
Shell reported on December 23 that, yet again, its massive US$17 billion Prelude FLNG off Australia had suffered what the energy company described as “a small fire” in a turbine enclosure on board. Shell said the fire was “was rapidly extinguished.”
Oh good. Unfortunately, it goes without saying that even small fires are not acceptable in the vicinity of thousands of tonnes of highly pressurised natural gas. So, yet again, production was shut down.
Another problem, another shut-in
The Prelude FLNG has been an endless litany of disappointments, seemingly largely due to the failure of its unionised Australian workforce to operate the unit safely. We previously covered the various shut-downs and black-outs in 2020 and 2021 here and here.
This is a supposedly highly skilled workforce that went on strike for 76 days demanding a large pay rise in July and August, shutting down LNG production just when Europe was most desperate for gas and prices were highest. Vladimir Putin should probably have sent his thanks to the Australian Workers Union and the Maritime Union of Australia, as we observed in our coverage of the industrial action.
I could believe that one shutdown over Christmas was credible, but for three years in a row, Prelude has been shut down over Christmas and New Year. Come on, people!
Prelude’s problems raise questions about competence and culture
Prelude has spent almost as much time out of service as in service. It had to be closed down for almost a year after an electrical trip in February 2020 revealed technical issues in its electrical system, which Covid restrictions and quarantine requirements made painfully difficult to fix. Production resumed in January 2021, conveniently just after the Christmas and New Year holidays.
However, then the unit was shut down again after an incident on December 2, 2021, when an electrical fire in an enclosure that housed batteries for backup power resulted in a complete loss of power at the facility. This small fire triggered an emergency shutdown that depressurised the entire FLNG production plant, and diverted all the gas in the system to be flared off. There must have been a spectacular fireball atop the flare tower, as well as a carbon emissions nightmare. Unfortunately, Prelude depends on its produced gas to generate power, and the three backup diesel generators for emergency power all failed.
The fire was thankfully put out quickly, but without power for the air conditioning system onboard, seven crew suffered heat-related injuries with some requiring drips. After a four-month halt, Australia’s offshore safety regulator, the National Offshore Petroleum Safety and Environmental Management Authority (NOPSEMA) permitted operations to restart, and Shell resumed shipping LNG from Prelude in April last year, only for the onboard workforce to go on strike again in June.
Output recommenced in September when the unions and Shell reached an agreement, but production was only maintained for three months until the fire on December 23.
Australian problems grow
What a joke. So far, we have three Christmases in a row shut in and billions of dollars of gas exports lost due to safety lapses and strikes by the workforce. What are the odds that some other minor problem will shut in the facility just in time for Christmas later this year?
Australia has long cherished ambitions as the world’s largest gas exporter. Shell’s problems on Prelude suggest that the long-standing labour issues revealed by the massive cost overruns in the onshore Gorgon LNG project have not gone away.
Barossa faces legal issues and permitting challenges
Now the federal courts have thrown up yet more obstacles to another new gas development in Australia. Dennis Tipakalippa, an Aboriginal elder, senior law man, and traditional owner of the Munupi clan of the Tiwi Islands, successfully sued NOPSEMA to cancel a drilling permit the agency had issued to Santos for the company’s Barossa gas project. The full judgment is available online here.
The Tiwi Islands are located in the Timor Sea, approximately 80 kilometres north of Darwin and are the closest Australian land to the offshore drilling site. In the successful court filing, Mr Tipakalippa claimed that he and the Munupi clan, as well as other traditional owners of the Tiwi Islands, have “sea country” in the Timor Sea to the north of the Tiwi Islands, which extends to and beyond Santos’ drilling area. Mr Tipakalippa and the Munupi clan have asserted rights to that sea country based upon what they claimed were their longstanding spiritual connections to the seabed, as well as upon the traditional hunting and gathering activities in which they and their ancestors have engaged in the area.
Unfortunately, Santos could not demonstrate that Mr Tipakalippa, others of the Munupi clan, or indeed any of the traditional owners of the Tiwi Islands had been sufficiently consulted about the drilling. The court ruled that the drilling environmental plan was thus invalid.
Mr Tipakalippa told the Australian media that “drilling into the seabed is like drilling into our bodies.”
It should be noted that drilling in the Timor Sea has been conducted since 1974 when Woodside-Burmah’s Big John rig drilled a successful well on the Troubadour Shoals.
MS-1 suspends drilling
Santos had hoped to drill six wells using Valaris’ semi-submersible rig MS-1, but only the first had been completed when it lost the initial case filed by the Tiwi Islanders. The company says that it is now revising its environmental plans and will reapply for the drilling permit. You can see the AIS position data for the rig here. The rig is chartered at over US$220,000 per day.
Santos claims that first gas from Barossa remains on track for production in 2025. It is hard to see how. I imagine that some serious consulting with the First Nations of the Tiwi Islands is underway. Indeed, the company has now announced dates to kick off a process.
Peter Milne: rough seas ahead
Just when Europe and China are hungry for Australian gas, this surprising legal curveball from Mr Tipakalippa and the Munupi clan throws both the Barossa project and future Australian oil and gas developments into question. As energy journalist Peter Milne has highlighted, there appear to be “rough seas ahead for offshore energy” in Australia, despite the increasing demand from customers.
Rock art in danger?
The next test in Australia will be over the expansion of the North West Shelf LNG plant. Already, last year, the traditional owners of Murujuga, also known as the Burrup Peninsula in Western Australia where the LNG plant is located, flew to the United Nations in Geneva (here). They were protesting that Woodside’s nitrous oxide emissions threatened Australia’s largest collection of Aboriginal rock art, some of which are believed to be over 30,000 years old.
Heritage must be legally protected by NOPSEMA
Whether NOPSEMA as regulator, or indeed any court, has the expertise or authority to consider such cultural and spiritual claims is open to question. However, as Peter Milne has pointed out, since 2014, NOPSEMA has held responsibility for administering the federal Environment Protection and Biodiversity Conservation Act for offshore projects.
This Australian law explicitly includes indigenous heritage value as part of the environment to be protected, and it also requires that the indirect consequences of any offshore activity should be considered when approving projects. Mr Tipakalippa is therefore unlikely to be the last First Nations leader fighting against Australian oil and gas projects in court.
Establishing a legal basis to challenge projects based on spiritual connections is a precedent that throws the door open to all manner of unexpected consequences. It is also not clear whether non-Aboriginal groups’ professed spiritual concerns should have equal weight.
Australia’s difficult history makes the First Nations’ claims on “sea country” an especially contentious area, and the conflict of claimed Aboriginal rights against fossil fuel production is politically loaded, and very emotive. The ruling opens up many questions and provides a potent weapon for those who oppose oil and gas projects. Delays and challenges to Australian projects are more likely than ever before.
Canada provides a different path?
Australia is not the only country with a history of troubled relations between the First Nations and those who settled the country later.
Canada has been equally wracked by claims of abuse as well as social and economic neglect against its indigenous peoples. But we were surprised to see that the Miawpukek First Nation of Conne River in Newfoundland had come aboard as equity partners in the Grassy Point LNG project there. Grassy Point will receive natural gas piped ashore from the offshore Jean D’Arc Basin, from the Hibernia, White Rose, Terra Nova, and White Rose Extension oil fields.
Canada has emerged as a potential LNG hotspot, with 18 proposed LNG export facilities at various stages of review —13 in British Columbia, two in Quebec, and three in Nova Scotia. These projects have a total proposed export capacity of 216 million tonnes per annum. None has yet produced first LNG, however, and most will probably not move ahead, but the window is open now with high prices and a need for supply to Europe from a reliable democracy like Canada.
Grassy Point marks the first ever First Nations equity participation in an offshore energy project in Newfoundland and Labrador. The project has not yet received final investment approval and funding is still to be secured, with first gas estimated in 2030. However, perhaps this is a model for the Tiwi Islands. Drilling may be painful but sharing the upside might ameliorate Mr Tipakalippa’s pain.
Open goal for those who move quickly
Mr Putin’s ill-judged war has opened opportunities for those who can move quickly. Demand for LNG is high, and suppliers to Europe and China will prosper in the coming few years, but that requires successful cooperation with local communities and contractors. I had never bargained that Canada, Congo, and Malaysia would be more investor-friendly than Australia.
Meanwhile, the Russians are continuing to murder civilians and destroy Ukrainian cities, and the battle for the gas needed to keep Europe warm next winter has already begun.
Maybe in another life, I will be as productive and perceptive as award winning Australian energy journalist Peter Milne. In addition to his great coverage of NOPSEMA, which we reference above, you can read his full back catalogue of oil and gas articles in WA Today here.
As a reminder, one million tonnes of LNG = 48.7 billion cubic feet of gas = 1.379 billion cubic metres of gas.
Our previous coverage of Prelude FLNG is here.
Snam’s excellent guide to “Everything you need to know” about FSRUs is here.
This anonymous commentator is our insider in the world of offshore oil and gas operations. With decades in the business and a raft of contacts, this is the go-to column for the behind-the-scenes wheelings and dealings of the volatile offshore market.