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Perth - Exxon Mobil and BHP Billiton [JSE:BIL] are planning to build the world's largest floating liquefied natural gas (LNG) processing and export plant off the northwestern shore of Australia, despite growing concerns about the cost competitiveness of the country's LNG projects.
At around half a kilometre long, the vessel would be nearly as long as five football fields laid end-to-end and would be the largest floating facility in the world.
The plant would bump up Australia's current LNG production by nearly 30%, producing 6 million to 7 million tonnes per annum (mtpa), enough to fuel the LNG needs of Japan, the world's largest importer of the gas, for about a month.
Exxon and BHP's decision to develop the Scarborough field using floating LNG is another vote of confidence in the as yet untried technology, which energy companies hope will help cut down on the ballooning costs of developing gas.
Exxon, which detailed the plan in a filing with Australia's environment department on Tuesday, did not give a cost estimate for the plant.
Australia currently has $190bn worth of LNG projects under way and is on track to replace Qatar as the world's largest LNG exporter by the end of the decade.
But the country has been plagued by cost inflation, and of seven LNG plants under construction there that are due to come online in 2014 or later, four have already announced cost blowouts ranging from 15% to 40%.
Fitch bearish
High costs and competition from other LNG producing regions such as North America and East Africa have led some industry analysts to predict that Australia's growth potential as an LNG producer is increasingly limited.
Fitch Ratings was the latest to forecast lower growth for the Australian LNG sector, saying in a report on Tuesday that increased costs had eroded the country's competitive advantage.
Royal Dutch Shell, considered the industry leader in floating LNG, has touted floating technology as a way to circumvent Australia's rising costs and cut down on construction time.
"Floating (LNG) is actually very good for the federal government in terms of getting the tax revenues out faster and quicker," Ann Pickard, Shell's country chairperson in Australia, said earlier this year.
An added advantage of floating LNG vessels is that they can be redeployed to another location once a gas field is depleted.
The Scarborough LNG plant would start production in 2020-2021 and be moored 220 kilometres from the Australian coast, Exxon said in the government filing.
If the Scarborough gas field were developed using floating LNG, the plant would be about double the capacity of Shell's Prelude LNG, also off the cost of Australia, which will have a capacity of 3.6 mtpa when it comes online in 2017 and be the world's first floating LNG plant.
Shell indicated that its Prelude LNG project was expected to cost in the range of $10.8bn to $12.6bn. With a similar cost structure, Scarborough LNG would cost $18bn to $24.5bn, according to Reuters' calculations.
The Scarborough floating LNG plant would be built offshore, likely in South Korea, which is already in talks to build similar facilities.
Exxon and BHP, which are 50-50 joint venture partners in the
Scarborough development, expect to make a final investment decision on the
plant in 2014-2015, Exxon said.
