Cost and Capital Budgeting:
Exxon and BHP Billiton Ltd is cooperating to extending 495 meters (541 yards) at sea to tap into the remote Scarborough natural-gas field offshore Western Australia. They are looking for government approval for the Scarborough project and targeting first production as soon as 2020.
Floating liquefied-natural-gas technology (FLNG) , is untried but has captured the attention of some of the world's biggest energy companies seeking to access gas fields that are too small or remote to develop using pipelines and onshore facilities. Royal Dutch Shell RDSB.LN +0.69% PLC is a leading requirement of FLNG vessels, which it plans to tap in Australia and in other places.
The calm of the Australia's northeastern coastline make the country becomes a strong candidate to give the world's first FLNG vessels. It’s stable political environment and nearby to Asian markets is also attractive. According to the International Energy Agency, China's natural-gas demand alone will more than quadruple to 545 billion cubic meters (19.247 trillion cubic feet) between 2011 and 2035.
However, companies like Exxon need to make sure that their vessels can withstand stormy seas. One main issue is that the forces generated by liquefied gas sloshing in partially filled containers can damage the storage system. That issue is being addressed with containers designed to minimize sloshing and with sophisticated anchoring systems that it can limit the movement of vessels in the water.
Exxon's facility would produce between six million and seven million metric tons of liquefied natural gas, or LNG, a year for several decades. LNG is natural gas chilled to a liquid so that it can be shipped by tanker. The Scarborough resource was discovered in 1979 and is measured to hold up to 10 trillion cubic feet of gas, equal to more than a third of the US's annual gas consumption.
Early design work would begin next year, ahead of a final investment decision in 2014-15, Exxon said in a filing to the Australian government's environment department. With close to a dozen natural-gas export terminals planned for its coastline, Australia is the world's top exporter of LNG by the end of the decade as well as the leapfrog Qatar.
The industry, however, is facing cost headwinds driven by a strong local currency and a shortage of skilled labor. Highlighting these challenges, Chevron Corp. CVX -1.43% and joint-venture partners including Exxon and Shell said in December the cost of building their giant Gorgon LNG project on the Western Australian coast had expanded by a fifth to 52 billion Australian dollars (US$54.4 billion).
The budget overruns come as Australia is likely to face the competition from gas-export industries in North America and Africa, which could make it more secure for customers. FLNG is often advertised by company executives as a means of intensity of cost pressures because much of the construction process occurs offshore in countries with cheaper sources of labor. Companies also don't have to pay for purchasing and cleaning land.
In 2011, Shell has to use a FLNG vessel to process natural gas from its Prelude field in the Browse Basin offshore northwestern Australia. The vessel is beginning producing 3.6 million tons of LNG each year from 2017. Shell estimated that its project would cost between US$3 billion and US$3.5 billion for every one million tons of production capacity, or between US$10.8 billion and US$12.6 billion. Exxon didn't estimate a cost for its Scarborough development.
With a similar cost structure, Scarborough LNG would cost $18 billion to $24.5 billion, 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 plans to decide whether to go