Cheniere Energy, Inc. (LNG): Is Royal Dutch Shell plc (ADR) (RDS.A) Making a Sequel to “Waterworld”?

It’s not every day that a company writes a check for $15 billion in an effort to save money. That’s a pretty astronomical number, but it does represent the cheaper option for several companies looking to tap offshore gas fields for liquefied natural gas, or LNG, production. Laying underwater pipelines for hundreds of miles can be expensive, especially when the gas and condensate contains large amounts of seawater and sediment. This heavily skews the economic competitiveness of large offshore reserves around the world to the “noncompetitive” category.

Why bring the gas to the liquefaction facility when you can bring the facility to the gas?

Royal Dutch Shell plc (ADR) (NYSE:RDS.A) aims to get around the high costs of developing offshore gas fields by building a floating liquid natural gas, or FLNG, facility. This is not a fanciful idea by a large multinational company with too much time on its hands: Construction has already begun on the $12.6 billion Prelude FLNG facility. It could mean big things for the future of natural gas.

All ideas start off as crazy
Shell’s Prelude FLNG facility (67.5% interest) will be the world’s largest, producing 3.6 million metric tons (mtpa) of LNG, 1.3 mtpa of condensate, and 0.4 mtpa of liquid petroleum gas each year. If building a massive floating facility sounds ridiculous, that’s because it is. And how massive is massive? Try 488 meters long. That’s about 50% longer than a Nimitz-class aircraft carrier (the world’s largest), more than four times longer than a soccer field, the same size as the Taipei 101 Tower, and just plain ginormous. The floating giant will displace the same amount of water at six Nimitz-class aircraft carriers. Yet despite its massive size, Prelude will have just 25% of the footprint of a similar-sized onshore facility.

The capacity will represent only about one-third the capacity of the Sabine Pass facility being constructed by Cheniere Energy, Inc. (NYSEAMEX:LNG) and TOTAL S.A. (ADR) (NYSE:TOT). However, this should not be looked at through a lens that focuses solely on capacity. Prelude is writing an important chapter in world energy supply — the kind that isn’t factored into long-term energy predictions. As we’ll see, the facility can be useful long after the gas field becomes uneconomical.

Source: Royal Dutch Shell.

Prelude FLNG will be moored about 200 kilometers off the northwestern coast of Australia and will open up a steady supply of gas to the high-priced Asian markets. The facility won’t have to be brought back to port for inspection for 25 years — not even during the strongest typhoons imaginable (famous last words).