Shell reboots Prelude LNG after lengthy shutdown
Shell has restarted shipping cargoes from its troubled Prelude floating LNG facility after not producing gas from the vessel since December 2.
Shell has restarted the shipment of LNG cargoes from its troubled $US12bn ($16bn) Prelude floating LNG project off Australia’s north-west coast after a lengthy outage, handing the market new volumes amid a global squeeze on supply.
Shell had not produced LNG from the facility since December 2, after an electrical fault that forced a shutdown of the floating vessel near the Prelude gas field, 475km northeast of Broome.
The UK oil and gas giant said cargoes had resumed and it had a long-term focus for the facility delivering a “safe, sustained and reliable” performance.
The National Offshore Petroleum Safety and Environmental Management Authority (Nopsema) cleared Shell to restart Prelude on March 18.
“Shell notes the announcement from Nopsema confirming Direction 1860 has been closed following Shell’s demonstration to Nopsema’s satisfaction that the facility can safely recover essential power and associated essential services following a loss of power, and that the safety systems and essential support systems operate to maintain safety of personnel,” Shell said in a statement.
The addition of the plant’s 3.6 million tonnes of capacity is well timed given tight global gas markets due to sanctions and restrictions on Russia, the world’s fourth-largest LNG producer.
Shell owns 67.5 per cent of Prelude alongside Japan’s Inpex with 17.5 per cent, South Korea’s Kogas at 10 per cent and Taiwan’s CPC with 5 per cent. Prelude was touted by Shell as the first of a revolutionary line of projects to unlock gas resources previously considered too remote to support the development of conventional land-based LNG plants.
However, high costs and technical problems on Prelude have slowed momentum to sanction additional floating projects.
Consultancy Rystad said the resumption of gas supplies from Prelude would help ease tight markets in the wake of Russia’s invasion of Ukraine.
“Asian buyers are holding LNG prices close to $US35 per million British thermal units as they have limited interest in higher-priced supply. This behaviour sustains a position of discount in Asia over European prices,” Rystad said in a client note on April 5.
The start-up of Prelude “may help ease regional balances going into the shoulder season”, referring to a period when demand for gas is lower.
The floating LNG vessel started delivering supplies from the Prelude gas field in June 2019. But the plant was yet to get anywhere near its full capacity when it hit a series of safety incidents early in 2020, which were probed by Nopsema. It then suffered the electrical fault, which caused the vessel to shut down in December.
The energy major – one of the nation’s biggest gas producers and foreign investors – was forced to write off $US6.2bn from its Australian operations in the 2020 financial year after the price of crude plummeted to a two-decade low last year. The Prelude platform was to blame for the bulk of the impairment as Shell cut its oil price forecasts and revised its stance over the venture.
Shell is one of the dominant players in Australia’s booming energy sector, operating the QCLNG export plant in Queensland, the Prelude floating LNG project off northern Australia along with stakes in Western Australia’s North West Shelf, Gorgon and Browse LNG ventures and gas business Arrow.
While Shell’s earnings are dominated by oil and gas currently, it wants to gradually shift the weight of its investment dollars to lower-carbon sources to reflect its prediction the energy system will rely much more on electricity rather than fossil fuels for its generation. It has identified Australia as one of six target markets where it will look to create an integrated electricity supply business with the potential to scoop up a “mass market” customer base through dealmaking.
Shell in November paid $729m for Meridian’s highly prized retail business, Powershop Australia, which delivers electricity to 140,000 customers and gas to 40,000 accounts.
The multinational said its power business would achieve equity returns of 8-12 per cent, compared with 12-15 per cent for its legacy oil and gas business.
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