Shell restarts Prelude as Japan hunts for back-up LNG

According to AFR, Shell has resumed production at its troubled Prelude floating LNG venture off Australia’s far north-west coast, pointing to a lift in Australian gas shipments to Japan just as the major importer is hunting for extra back-up supplies in case its Russian imports are disrupted.

The situation cements Australia’s position as a critical supplier of energy to Japan, which has already increased LNG imports from Australia this year even as its total imports dip.

According to Blake Wright, Shell has restarted the shipment of LNG from its multibillion-dollar Prelude FLNG facility off northwest Australia after being sidelined since 2 December 2021 due to significant power issues. The first cargo since late last year left the project site on 10 April, according to the company.

Its restarted operations should provide some relief to term off-takers in South Korea and Japan, Rystad Energy wrote in a market note. "Spot buying interest from South Asia has been very robust over the past few days with several cargos being awarded around the $30 mark."

The Prelude FLNG facility suffered a fire and lost power in December. Shell was unable to restore reliable power supply after a reported 3 days of attempts.

Shell was permitted to resume operations last month after convincing the National Offshore Petroleum Safety and Environmental Management Authority (NOPSEMA) that power problems had been resolved.

Local news outlets in Australia saw the NOPSEMA investigation report, which found the power issues could have resulted in “catastrophic failure” of parts of the ship due to the lack of cooling of its substructure, which could have jeopardized the support of the ship’s topsides.

The centrepiece to the $24-billion Prelude project is the 488-m-long FLNG vessel moored some 475 km off the Australian coast. The floater has capacity to produce 3.6 mtpa of LNG in addition to condensate and LPG.

The 4-month shutdown was just the latest in a string of setbacks since its delayed start-up in 2019.

Prelude is co-owned by operator Shell and partners Inpex, Korea Gas,-and a subsidiary of Taiwan's state-run Chinese Petroleum Corp.

Shell questions Andrew Forrest's green hydrogen dreams

Shell’s head of hydrogen, Paul Bogers, believes that it will be more difficult than anticipated for Fortescue’s chairman Andrew Twiggy Forrest to deliver on his ambitious agenda, The Australian reported.

“We like the enthusiasm for the venture…. But I think the reality is it’s still some time away before we can build these really large-scale ammonia-based import-export plays,” said Bogers.

“We’re not convinced that that is the best way of shipping hydrogen over longer distances, because of how much energy you have to put in creating it.”

Several of Fortescue’s major shareholders and analysts have already expressed concern about the costs involved to bring Twiggy’s green hydrogen dream to life. The iron ore miner is committing 10% of its net profit to its green energy business, Fortescue Future Industries.

An analysis by The Australian found that Fortescue will need around $195 billion to make good on Twiggy’s promises.

Santos and Woodside see a solution to energy shock

According to the AFR publication, the two resources giants believe the Ukraine war will create a power security crisis that will reverberate for decades. And they have the solution.

Santos chief executive Kevin Gallagher and Woodside boss Meg O’Neill are careful to say all the right things about the spikes in oil and gas prices caused by the war in Ukraine.

Speaking at The Australian Financial Review Business Summit in March 2022, Gallagher repeated his view that he’s never comfortable when oil prices get so high that demand destruction is a threat, while O’Neill expressed her support for the people of Ukraine.

But neither energy veteran is about to waste a crisis they say has confirmed the importance of oil to the global economy, raised fresh questions about energy security around the world, and emphasised the need to carefully manage the energy transition over decades.

So, having spent the last few years defending themselves against a rising tide of environmental concerns amid an accelerating energy transition, the crisis in Ukraine is allowing them to make the case for the long-term expansion of oil and gas supply with a new sense of confidence.

“I think this is a change that’s going to be with us for decades, honestly,” O’Neill said of the commodity shock ripping through global markets.

“When we talk to customers, they want affordable energy, they want lower carbon energy, but first and foremost, they want reliable energy. And I think this is going to cause the world to think really hard about energy security, and where we buy energy from.”

Countries like Australia and the United States, she argued, would be in the box seat to help provide energy security to like-minded allies no longer keen to rely on regimes such as those in Russia and the Middle East.

Gallagher issued a similar warning, saying that with oil and gas still part of the energy mix out to 2050 – under even the most aggressive energy transition scenarios – supply provides the only solution to the current crisis.

And even that’s no sure thing.

“I just don’t see how the supply side can fill the gap in any sort of meaningful timeframe to address these high prices,” he said.

The Summit has been notable for the change in rhetoric from a range of business leaders around energy policy.

The zeal for decarbonisation hasn’t necessarily waned, but the Ukraine conflict has brought a recognition that an energy transition needs to be just that – a well-managed shift that considers energy reliability and affordability alongside environmental needs.

Gallagher says turning off fossil fuel supply “is not going to speed up the transition”, and would smash an industry such as manufacturing where energy is a key input.

“That wouldn’t be so much of a transition but a demolition of that sector. There’s got to be multiple decades to transition.”

High prices always lead to a supply response, so the question is whether the fallout from the war in Ukraine speeds up the energy transition (by incentivising renewable energy), or slows it down (by justifying investment in oil and gas that seemed unlikely six months ago)?

Gallagher was careful not to overplay his has hand, arguing investment in new production will need to be accompanied by investment in decarbonisation.

He says it is only because of Santos’ controversial carbon capture storage project at Moomba, in South Australia, where it will inject carbon into depleted gas reservoirs, that new oil and gas projects can be considered.

And he backed O’Neill’s view that it is gas, not oil, which will be the focus of Australia’s energy giant, due to the commodity’s role as a transition fuel.