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Malaysia’s PETRONAS outlines fast-track FLNG vision

10 Jun 2011 10:50:29 | glm

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Malaysia's incumbent oil and gas producer PETRONAS plans to make a final investment decision (FID) on a 1.2m tonnes per annum (mtpa) floating LNG (FLNG) unit by the end of the end of the year, the company's CEO said on Wednesday.

"We are hoping to get the first commercial cargo by early 2015, with the [FLNG] project completed by end 2014," the chief executive officer, Shamsul Azhar Abbas, said at a press conference in Kuala Lumpur.

The move could make PETRONAS the first company with FLNG production, a target the company hopes to achieve.

"If we are successful, we will complete it earlier than Shell's Prelude project announced last month," Anuar Ahmad, executive vice president for PETRONAS' gas and power business, told the conference.

However, the CEO also admitted that the timeline is "a tough target".

Last month, Shell sanctioned its planned 3.6mtpa Prelude FLNG, which will tap the Prelude gas field - 200km from the coast of Western Australia - with operations set to start in late 2016 or early 2017 (see GLM 20 May).

PETRONAS launched the project in February when its shipping subsidiary MISC awarded a front-end engineering and design (FEED) contract to France's Technip and South Korea's Daewoo Shipbuilding and Marine Engineering (DSME).

Referring to the size of Shell's project, the CEO said: "We are not in the position to go for that level of sophistication as yet. We believe in starting small."

However, Shamsul did not rule out the possibility of scaling up the FLNG project in future when the company becomes more familiar with the technology.

"The best for us is to start small, and then when we learn, moving forward, when we are good enough, we will scale up," he said.

"We reckon that 1.2mtpa is going to be the most optimum size as far as FLNG is concerned. For us, we reckon that 1.2mtpa-1.5mtpa is the best," Shamsul added.

While PETRONAS did not provide any details on the projected cost or the specific supply source for the project, it is expected to be moored off the west coast of the country and will be 100% owned by the Malaysian company.

Supply challenges

PETRONAS' decision to press ahead with the FLNG project is part of a wider long-term strategy aimed at averting a looming domestic supply shortfall while meeting its long term contractual export obligations from its Malaysia LNG (MLNG) complex.

This strategy also extends to importing LNG to meet rising domestic demand via its 3.8mtpa capacity import terminal in Malacca, expected to start operations next year. The terminal will be initially supplied by a 2.5mtpa supply contract with GDF SUEZ before PETRONAS brings from its own supply from the Gladstone LNG project in Australia.

Moreover, the government last week enacted the latest increase in domestic gas prices for power generation companies and industrial users, which it hopes will not only make LNG imports more palatable but also encourage domestic gas exploration (see GLM 3 June).

However, PETRONAS executives admitted that there will be no quick fix to the company's supply challenges.

"We are facing challenges because we have a very tight supply capacity. This is because in the past few years, there have not been a lot of investments in production capacity," Wee Yiaw Hin, executive vice president for exploration and production business said at a press conference in Kuala Lumpur.

However, new government tax incentives have been introduced to encourage more exploration and increase supply capacity, he said.

"Tax incentives are in place to develop the smaller fields [in Malaysia], to encourage more exploration. The environment is now right for us to go into aggressive building up of gas supply capacity in Malaysia. This will take 18 months to two years, but in the short term, we will continue to face tight supply challenges," he added.

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