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The giant Prelude platform is on its way to WA’s north-west coast. Photo: Shell Australia

Prelude to an LNG drag race

The giant Prelude floating liquefied natural gas platform en route to the Kimberley coast could be the start of a resources revolution, but it could also turn out to be another resources sector flop, with a looming $50 billion LNG ‘drag race’ likely to provide the answer as to which.

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United Kingdom
A useful comparison - the off-shore versus on-shore challenge. Both are clearly subjected to operating costs and LNG pricing. Perhaps LNG will establish an independent benchmark to assist economics - the principle of stranded gas reserves has been suitably solved. Prelude more or less de-risked investment in FLNG; there will be snags but FLNG is certainly a factor towards energy demand. The logistics of shipping will benefit substantially, in particular with latest generation builds. Altogether an industry for business growth, although the current backlog of FLNG projects may hold back progress, owing to caution as oil and gas levels find sustainable value. Shell's overall gas position provides for further FLNG projects. Interesting days ahead.

Victoria Park
The main drag race is actually to see who starts up first, as both projects will be sucking gas from the essentially the same reservoir. Both projects have field depletion plans aimed at maximising the amount of gas that can be taken and this involves being first to start production.

With a unit capital cost of about $4,000/TPA for each project an LNG price of $12 to $15 would be required to make an acceptable return on investment. Current LNG prices are stuck at less than half that. To be viable in today's market, unit costs for floating LNG projects need to be in the $1,000 to $1,500/TPA range.

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