Shell casts doubt on Abadi LNG

LONDON, May 5, 2016 – Speaking to reporters on Thursday, Shell chief financial officer Simon Henry cast doubt on the economics and thus the feasibility of building Indonesia’s Abadi LNG facility onshore, adding that FLNG projects in general are becoming increasingly hard to execute in the current business environment.

Going against the original development plan submitted by Japanese operator Inpex, Indonesian President Joko Widodo in late March opted for building an onshore LNG facility. Commenting on the project, Henry said that its feasibility might be in doubt as a result. “It was actually very difficult to see how you could make that one economic by going onshore.” Capable of processing 7.5 tonnes of LNG per year, the Masela Abadi LNG facility is expected to cost at least USD 14 billion. The Masela production-sharing contract area is estimated to hold more than 283 bcm (10 tcf).

Henry said FLNG projects and other expensive ventures are under increased scrutiny. “At the moment, to be brutally honest, any large greenfield investment whether its FLNG, deep water or elsewhere, even in the downstream, is under very strict critical review for cost levels and economic returns simply because of where the industry is and where the financial framework for Shell is at this point in time,” he added.

At the end of April, the Browse joint venture, comprising Woodside Petroleum, Shell, BP, Mitsubishi-Mitsui and PetroChina cancelled an engineering, procurement, construction and installation contract for three floating LNG vessels that would have been put to work on the Browse development project offshore Western Australia. The cancellation represented a USD 4.6-billion setback for Samsung Heavy Industries.

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