Shell ships long-awaited first LNG cargo from Australia's Prelude

By Sonali Paul

MELBOURNE (Reuters) - Royal Dutch Shell on Monday shipped the long-awaited first cargo of liquefied natural gas from its massive Prelude floating LNG plant off northwest Australia, sealing the nation's position as the world's top exporter of the fuel.

The start-up comes just as spot LNG prices have sunk to their lowest in over three years, with new projects in Australia and the United States boosting global supply while demand in Asia was dented by a mild winter.

Prelude is the last of eight LNG plants built on Australia's eastern and northwestern coasts in a $200 billion LNG construction boom over the past decade.

Its first cargo had been targeted for 2018, but was delayed by a string of teething problems at the world's biggest floating vessel. The 490-metre long (1,600 ft) ship is longer than four soccer fields and six times bigger than the world's largest aircraft carriers.

Shell declined to comment on the cost of Prelude, but consultancy Wood Mackenzie estimates it at around $17 billion.

"Today's first shipment of LNG departed from Prelude FLNG, safely," Shell's integrated gas and new energies director, Maarten Wetselaar, said in a statement.

The cargo on the Valencia Knutsen LNG tanker is going to customers in Asia, Shell said, without giving the size of the shipment.

Prelude is expected to produce 3.6 million tonnes a year of LNG, 1.3 million tonnes a year of condensate and 400,000 tonnes a year of liquefied petroleum gas (LPG).

The project is jointly owned by Shell, Japan's Inpex Corp, Korea Gas Corp and Overseas Petroleum and Investment Corp, a unit of Taiwan's CPC Corp.

Shell had expected Prelude to be the world's first floating LNG project, but was beaten by Malaysia's Petronas, which shipped the first cargo from its PFLNG Satu project two years ago. Prelude is the world's biggest floating LNG plant, however.

It took two years from the time the vessel was first moored on top of the fields that feed it to ship the first LNG cargo.

"How fast Prelude delivers its second and third cargo and ramps up to plateau output will be a key indicator of success," said Daniel Toleman, an analyst at Wood Mackenzie.

Chris Meredith, another Wood Mackenzie analyst, earlier said it was no surprise that Prelude had faced lengthy delays.

"It's such a novel technology and an isolated location. It was always going to be difficult," he told Reuters in an interview in late May.

OVERLAP

Inpex's $40 billion Ichthys project at an onshore plant in Darwin has more than double the LNG capacity of Prelude at 8.9 million tonnes a year. That development shipped its first LNG cargo last October, also following lengthy delays.

Shell and Inpex had been racing each other to bring their projects online as the Ichthys field partly overlaps the Prelude gas field, which is one of two fields feeding the floating LNG project. The other is called Concerto.

Besides starting ahead of Prelude, Ichthys ramped up to full capacity faster than expected, with Wood Mackenzie and another consultancy, EnergyQuest, both estimating it reached full capacity within about seven months of start-up.

"As a result of Ichthys starting up earlier, there might be some negative impact on Prelude's reserves," Toleman said.

Shell has already started design work to develop another field, Crux, to help keep Prelude FLNG filled from 2025, according to a plan filed to Australia's offshore petroleum regulator.

"At this stage we see Crux coming in at 2025. That's quite a short production plateau for Prelude. I can't think of any analogues for LNG projects that have had that short a plateau on the initial project," Toleman said.

Shell and Inpex were not immediately available to comment on the impact on Prelude from Ichthys' earlier start-up.

(Reporting by Sonali Paul; Editing by Richard Pullin and Joseph Radford)