A Review of the Nigerian Energy Industry

CNOOC studying FLNG

CNOOC, China17 July 2014, News Wires – China National Offshore Oil Corporation (CNOOC) is studying the possibility of building a multi-billion-dollar floating liquefied natural gas vessel that would likely be used to produce gas from the deep waters of the South China Sea.

While the state-run company has made no public announcement, a pre-feasibility study was well under way, Reuters cited CNOOC and other industry officials as saying.

CNOOC was already talking to global engineering companies about possible joint design of the vessel, the news agency quoted two industry officials as saying.

About 10 FLNG facilities are being planned globally with a handful under construction, among them the biggest, Prelude, owned by  Shell and due to be producing from an offshore Australian field by 2017. Shell has shied away from offering estimates of Prelude’s likely cost, but analysts say it could be more than $12 billion.

While a Chinese FLNG plant might be some years away, Reuters cited industry officials as saying such vessels could become an important component of Beijing’s strategy in the South China Sea – including in disputed waters – as the country looks to boost its offshore energy output.

CNOOC Group was doing a pre-feasibility study to evaluate the potential costs and returns of using FLNG technology, the company’s chief deep-water researcher, Xie Bin, told a seminar last month.

“For disputed waters, we need to be self-sufficient because we can’t expect onshore support from any neighbouring nations,” Xie said in the Chinese city of Tianjin. Approached later at the seminar by Reuters, Xie declined to make additional comments.

He gave no cost estimate for building an FLNG facility, although other industry officials said it could run to several billions of dollars.

Xie said CNOOC was looking at an FLNG plant that could handle up to 2.4 million tonnes of gas per annum and operate at a depth of 1500 metres.

However, Reuters cited unnamed industry sources as saying the Chinese company might start with a smaller 1 million tpa vessel.

Prelude by comparison will produce about 3.6 million tpa – still small versus some land-based LNG plants.

In April, an in-house article on CNOOC’s website said its research and development arm together with two Chinese universities had designed a small-scale FLNG vessel with a capacity of about 5000 tpa.

The company planned to build the model by the end of September and test it off the northeastern port city of Yingkou, the article said.

CNOOC is also courting foreign companies about possible joint design of an FLNG ship, said Li Jianmin, head of the deep-water engineering department at CNOOC Ltd, and Feng Qin, chief specialist for offshore engineering at Asia’s top oil refiner Sinopec.

Both Li and Feng declined to name potential partners when they spoke to Reuters last week.

Feng told the news agency he was aware of CNOOC’s study as well as plans by other Chinese energy companies to research FLNG technology. While Feng would not say if Sinopec was interested in FLNG, he said it was a promising option for the South China Sea.

“FLNG has an unrivalled advantage for relatively small-scale deep-water gas fields versus subsea pipelines,” Feng was quoted as saying.

In disputed waters, a single vessel would also be much easier to protect than potentially hundreds of kilometres of pipeline.

Wang Jinlian, secretary-general of the China Association of the National Shipbuilding Industry, told Reuters the government was ready to finance research and development and offer tax incentives for any local manufacturing work needed to build such floating liquefaction plants.

Government officials could not be reached for comment, but the Ministry of Finance issued a policy document in April supporting local companies developing offshore engineering technology through tax incentives and the waiving of import tariffs on components and raw materials.

CNOOC told Reuters on Tuesday that research into FLNG technology was under way but declined to say more.

The group has long said it wanted to conduct more exploration in deeper waters off China, having in 2010 set a goal to find by 2020 another “Daqing” – an onshore field in the country’s northeast that produces one million barrels per day of oil equivalent.

China has so far made only one major gas find in the deep waters of the South China Sea, the Liwan 3-1 field in undisputed Chinese territory off Hong Kong. The field is being developed by CNOOC and Canada’s Husky Energy.

Beijing claims about 90% of the South China Sea, whose estimated energy potential varies widely, although geologists believe it holds more gas than oil. Vietnam, the Philippines, Malaysia, Brunei and Taiwan also claim parts of the key waterway.


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