[단독]Gas Corporation offshore gas field invested 1.7 trillion won… 80 billion lost in last year alone

[이데일리 문승관 기자] Australia’s Prelude offshore gas field (FLNG) business has managed to resume after it escaped from aground crisis, but it remains unclear whether normal operation will be possible. Global investors and asset managers are devaluing the Australian Prelude FLNG project, saying that it is a’white elephant’ (a high cost and useless thing). There is no production competitiveness due to many technical difficulties.

As the Korea Gas Corporation resumed its business after a year or so, it decided to invest business operation expenses such as repair of production facilities. Regarding the Prelude project, he reported to the board of directors to establish an overseas business coordination and exit strategy in parallel.

Through the establishment of an exit strategy, it will respond to future production disruptions with a specific’action plan’. If Shell, a multinational energy company, which is an injection company and its largest shareholder, stops production again due to a decrease in LNG unit prices, there is a possibility that it will engage in legal battles against operating losses.

Australia’s Prelude offshore floating gas field is a project to mine LNG buried under the sea by floating plant facilities on the sea. The mining facility is 488 meters long and 74 meters wide, about five times the size of a soccer field. It is the largest of the offshore plants ever built. Samsung Heavy Industries built it and delivered it to Shell in 2017.

Prelude offshore floating gas field in Australia and major investors (photo = Shell Australia Prelude gas project description)

Loss of 80 billion last year… Start to prepare an exit strategy

According to the energy industry on the 7th, the KOGAS recently held a board of directors and resumed the Australian Prelude floating liquefied natural gas business, which had been suspended for a year. It was decided to proceed in parallel.

Shell, the largest shareholder of the Australian FLNG business, has recently resumed production of Australian Prelude FLNG gas, which had been suspended for a year due to a surge in LNG demand and prices in Asia. Gas was produced and transported from June 2019, but production was stopped in February of last year due to a decrease in demand due to Corona 19 and a drop in prices. KOGAS has invested $1.5 billion (about 1.7 trillion won) in this business and owns a 10% stake.

An official from the KOGAS said, “We decided to prepare a project adjustment’master plan roadmap’ for overseas business portfolio adjustment, and project manuals and checklists when contracting for overseas business.”

However, this official stressed, “We are looking for strategies as we are reviewing exit strategies regularly for investment business management, but we do not intend to sell the business as of now.”

The burden of operating expenses and operating losses that the KOGAS has faced with the production of offshore gas fields in Prelude, Australia is growing like a snowball. KOGAS planned to secure 360,000 tons per year, 10% of the total 3.6 million tons of LNG per year, but it is not easy at this time. Due to the delay in starting production, Gas Corporation in 2019 made an operating loss of 21.5 billion won only in the Prelude business in Australia, and ceased operation in February last year due to facility stability issues, recording an operating loss of 25 billion won in the first quarter alone. The market predicted a loss of around 100 billion won, but the KOGAS is estimated to have lost 80 billion won last year by reducing fixed costs as much as possible.

(Graphic = Reporter Lee Dong-hoon)

‘White Elephant’ Prelude FLNG… Dark business outlook

In particular, in the market, it is estimated that Shell, an injection company, suffered a total of 13 billion dollars (about 14 trillion won) after starting the Australian FLNG business. Shell announced that it had lost $9 billion (about 10 trillion won) in the second and third quarters of last year alone. Experts analyze that the break-even point could not be reached due to a sharp drop in international oil prices caused by the spread of Corona 19 as the cause of production disruption.

Credit Suisse, a global investor, recently told the Financial Times (FT), “For reasons of offshore plant construction problems and cost overruns, technical problems in offshore LNG mining, and challenging market conditions, FLNG operators other than the Prelude business are giving up their business. “

“Frelude FLNG added to Shell’s concerns about resumption of operations due to the location of facilities 475 km away from the west coast of Australia, production restrictions due to COVID-19, and complex technical issues.” “Through FLNG, we are trying to lead the next-generation LNG trend. It also took a big blow to the plan,” he analyzed.

Shell tried to add a FLNG business to Western Australia in 2016, but as the market froze, it canceled three offshore plants that it was trying to order from Samsung Heavy Industries. At the same time, Canadian and Belgian companies also tried to proceed with the FLNG project, but gave up.

Alliance Bernstein, an American asset management company, also pointed out that the Australian Prelude FLNG project is only a costly and useless’white elephant’. “The unit cost is higher than the land LNG project, and it has technical challenges.”