Shell is among many firms building floating vessels that can tap into huge reserves at sea.
For more than a decade, the world's biggest liquefied natural gas producers plotted how to move their $170 billion industry onto barges at sea to tap remote fields.
Now they're finally doing it.
Royal Dutch Shell will forge the hull of a floating LNG plant in South Korea by year-end that will be the world's largest vessel, weighing six times the biggest aircraft carrier, a Nimitz-class warship. Some 5,000 workers will build the factory to produce LNG off Australia's northwest coast in a $13 billion project that also will shield Shell from escalating costs it would have to pay at the country's onshore plants.
Rivals, from Malaysia's Petroliam Nasional Bhd. to GDF Suez SA of France, likewise want to compress gas into liquid at sea, where many of the largest finds were made in the past decade. It's a generational change for a land-based industry that started about 50 years ago in Algeria, where Shell provided technology for Camel, the first commercial LNG plant. Today, those facilities typically cost at least $20 billion to build.
"We remove the need for the pipeline and use about 50 percent of the raw materials for an equivalent onshore plant," said Neil Gilmour, Shell's FLNG general manager. He's overseeing construction of the world's first floating LNG vessel for use by the Prelude venture partners.
Costs for onshore LNG plants are surging in Australia as it moves to challenge Qatar as the world's biggest LNG exporter. The U.K.'s BG Group Plc and Woodside Petroleum Ltd. have announced overruns at onshore projects in Australia amid rising labor expenses, while Chevron Corp. is reviewing the cost of its $45 billion Gorgon venture.
The Prelude vessel is being built for Shell, Europe's largest oil company, by Korea's Samsung Heavy Industries Co. and Technip SA of France. It "will be immune to some of the onshore cost inflation you've seen in other projects globally," Gilmour said. The Anglo-Dutch company, based in The Hague, is already charting the next three vessels aimed at developing stranded gas resources.
Demand for LNG will more than double to about 460 million tons by 2025, according to Deutsche Bank AG. Floating LNG plants will supply about 3 percent of the fuel.
Shell plans to deploy the technology beyond Australia in Europe, Africa and the Americas. Meanwhile, Petronas is moving ahead with plans to build its first floating LNG project due to start in 2015. ConocoPhillips is also joining the race to build a floating plant off Australia.