Floating LNG: Asia's Big Energy Mistake

By MarEx 2014-08-23 00:05:00

Op-Ed by Stewart Taggart

Floating Liquid Natural Gas (FLNG) projects in Asia raise hard questions about the technology’s suitability. These include unproven durability,  questionable efficiencies and ‘Tragedy of the Commons’ resource exploitation. 

Regionally-interconnected gas pipelines look like a much better long-term deal.

To date, the only confirmed FLNG project for Asia is Shell’s US$12 billion Prelude project off Northwest Australia. However, Australia’s Woodside Petroleum is studying FLNG for Northwest Australia’s offshore Browse Field. China National Overseas Oil Company (CNOOC) is considering FLNG to develop gas supplies in disputed South China Sea waters.

Given that gas pipelines and FLNG cost roughly the same to build, a better long-term investment would be an open-access, common-carrier cross-border gas pipeline network. 

Pipelines have great flexibility. They also generate network economies. FLNG can only do one thing: carry gas between fixed locations, a big rigidity. 
 
The use of FLNG for Australia's Northwest Shelf is opposed by Western Australia Premier Colin Barnett. Barnett argues FLNG short-changes host regions by reducing land-based investment. 
 
China’s CNOOC is studying FLNG to develop gas fields in South China Sea disputed waters by avoiding any need for regional land-based facilities.  

Such a move is certain to be opposed by Southeast Asian countries such as the Philippines and Vietnam, which also claim areas of the South China Sea likely to be targeted by CNOOC. 

The result is that FLNG could heighten regional political tension.
 
This was demonstrated earlier this year when China placed an exploratory oil rig in waters claimed by Vietnam, a move that sparked violent anti-Chinese protests in Vietnam.

In both the South China Sea and Australia’s Northwest Shelf, large new gas supplies will be developed in coming decades. These will require large capital investment. 

In Australia’s Northwest Shelf, a gas pipeline would enable aggregation of both onshore and offshore natural gas supplies for delivery to Northeast Asia. Such a pipeline system could later provide a route to market for Timor Sea and Eastern Indonesian gas supplies.

In the South China Sea, Joint Development Areas shared by China and her Southeast Asian neighbors could link into this larger, regional common-carrier, open-access gas delivery network. 

China, Vietnam and the Philippines all have expressed qualified support for joint development as one means of managing overlapping South China Sea claims.
 
In the future, pipelines can enable development of new fuels. These can includedeep-sea methane hydrates. They can also establish pathways for laying subsea High Voltage Direct Current power lines.

These would more deeply integrate regional electricity markets.

Subsea pipelines represent a long-term solution. FLNG, by contrast, looks like an example of short-term thinking that costs more in the long run.

Stewart Taggart, a former energy market journalist, is principal of Grenatec, a research organization studying the viability of a Pan-Asian Energy Infrastructure. This infrastructure would include inter-connected power lines, natural gas pipelines and fiber optic cables stretching from China, Japan and South Korea to Australia. Stewart has published peer-reviewed research on the concept as well as written trade, specialist and general interest press articles on the ‘Pan-Asian Energy Infrastructure’ concept. Stewart is also an active conference speaker.