Page 10 - GLNG Week 02 2021

GLNG COMMENTARY GLNG

west coast, as well as restrictions related to the many build one’ in some quarters following dis-
coronavirus (COVID-19) pandemic have com- appointing project execution,” a Credit Suisse
plicated Shell’s efforts to restart operations. analyst, Saul Kavonic, was quoted by the Finan-
Nonetheless, the super-major said that as Prel- cial Times as saying. “Only more modest niche
ude is a multi-decade project, its focus in on sus- applications are now seen as plausible.”
tained performance over the long term.
However, Shell has backed out of other FLNG What next?
projects, as have other producers, likely deterred The prolonged outage at Gorgon Train 1 comes
by witnessing the challenges at Prelude, which as LNG spot prices in Northeast Asia have risen
included cost overruns as well as technical to record highs on seasonal winter demand and
issues. some supply shortages. Just nine months ago,
“Prelude has been a ‘white elephant’ – we in late April, Northeast Asian spot prices fell to
always felt it was a technology looking for a solu- record lows of around $1.675 per million British
tion rather than the other way round,” a Bern- thermal units ($46.33 per 1,000 cubic metres). The prolonged
stein analyst, Neil Beveridge, was quoted by the However, last week the Japan-Korea Marker
Financial Times as saying. He added that there (JKM) benchmark set a new record of $21.45 outage at Gorgon
were numerous competing onshore LNG pro- per mmBtu ($593.31 per 1,000 cubic metres). Train 1 comes as
jects proposed that did not require such expen- This week, it rose further still to a new all-time
sive, pioneering technology as that necessary for high of above $30 per mmBtu ($829.80 per 1,000 LNG spot prices
Prelude. As a result, very few large-scale FLNG cubic metres).
projects are going ahead, Beveridge noted. “Given limited supply flexibility, supply out- in Northeast Asia
Indeed, Shell cancelled orders for three FLNG age risks and large demand swings, when the
facilities from Samsung following a decision in LNG market risk skews short it can send prices have risen to
2016 by Woodside to scrap its plans to jointly skyrocketing for short periods,” Kavonic was record highs.
develop a Western Australian gas field using quoted by the Australian Financial Review as
FLNG. The same year, FLNG projects backed saying.
by Canada’s AltaGas and Belgium’s Exmar in The impact of the outages at Gorgon has
Canada and Colombia were scrapped, with been somewhat limited by Chevron only tak-
poor market conditions cited as the reason for ing one train at a time offline for maintenance.
the moves. Prelude’s return to the market, meanwhile, will
Shell has not disclosed the cost of Prelude, but be welcomed by buyers at this point. However,
the Financial Times cited analysts as saying it questions remain over whether the short-term
had risen to AUD17bn ($13bn). price spike will translate into greater confidence
“The industry FLNG ambition to ‘design one among LNG developers over longer-term mar-
build many’ has unfortunately become ‘design ket conditions.™

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