BHP and Exxon opt for floating LNG plant

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Oil giant ExxonMobil has lodged plans for a huge floating liquefied natural gas project (FLNG) to process gas from its Scarborough field off the coast of Western Australia, highlighting the costs of setting up LNG plants onshore in Australia.

It’s not the first company to decide on a floating plant to process LNG, Shell’s FLNG plant is already under construction and will process gas from its Prelude project in the Browse Basin – not to be confused with Woodside Petroleum’s (WPL.AX) Browse project, which is expected to see an onshore LNG plant built at James Price Point in Western Australia.

Exxon jointly owns the Scarborough project with mining (and rapidly expanding oil and gas) giant BHP Billiton (BHP.AX), which is expected to produce 6 to 7 million tonnes of LNG per year. Early design and engineering work could start as early as this year, but production is not expected to start until 2020-21.

Floating LNG plants have several advantages over onshore plants, being smaller and less costly to build as well avoiding issues such as native title and land clearing approvals and have a lower environmental impact. Onshore plants require large infrastructure spends, including extensive pipelines, jetties and roads, which are fairly irrelevant for FLNG.

Exxon hasn’t indicated how much it will cost to build its plant, but Shell’s FLNG costs are estimated at around $12 billion to produce around 3.6 million tonnes of LNG a year. Chevron and its partners are spending an estimated $52 billion to build the Gorgon onshore LNG plant, which is forecast to produce 15 million tonnes of LNG per annum. Santos Limited (STO.AX) and Origin Energy (ORG.AX) have seen their onshore LNG plant costs blowout mainly due to the high Australian dollar and high labour costs.

All up, Australia has around $200 million of LNG plants in construction or under development, to produce an estimated 61 million tonnes of capacity – almost triple the current capacity – which could also see Australia become the world’s largest LNG supplier.

Foolish takeaway

Exxon’s decision to go with a floating LNG plant could see Woodside Petroleum follow suite with its Browse Project – although the Western Australian government is unlikely to be very happy about that, insisting the LNG plant must be built at James Price Point.

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