Gas companies all at sea

Escalating costs to build liquefied natural gas (LNG) plants on land in Australia, where energy workers earn the highest salaries in the world, are driving developers out to sea in search of billions of dollars in savings.

ExxonMobil plans to use the world's largest ship to turn gas into liquid at an offshore field, eliminating the need for investment in pipelines and port facilities. Woodside Petroleum is studying sea-based technology since ditching plans this month for an onshore plant for its Browse project.

After starting work on US$180 billion in LNG terminals on land, developers are considering about US$85 billion in floating projects to keep Australia competitive with suppliers in North America and East Africa. The floating export terminals will be built in Asian shipyards where labour costs are lower, including South Korea, the world's biggest shipbuilder after China.

"A lot of people have been saying Australian LNG is now over, it's going to be priced out of the market by US LNG exports and competition from Canada and East Africa," said Mark Greenwood, an analyst at Citigroup. "In our view, we are going to see continued investment in Australia, just a different sort."

The engineering challenges are massive. Royal Dutch Shell's Prelude vessel, vying to be the world's first floating LNG facility, will be as long as the Empire State Building and six times the weight of the largest aircraft carrier. Exxon proposes a vessel spanning 495 metres, or seven metres longer than the Shell plant.

Australian oil and gas workers earn US$163,600 a year on average, 35 per cent more than employees in the US and almost double the global average, according to a survey this year by recruiting company Hays and Oil and Gas Job Search. That compares with US$93,400 in Britain, according to the study, which analysed pay for engineers, geoscientists and related jobs.

Floating LNG may be almost 20 per cent cheaper than building a project on land for Woodside and its partners in the Browse project, including Shell. Using three offshore vessels to produce the gas would cost an estimated A$35 billion (HK$280 billion), compared with a cost of A$43 billion for a new development on land, John Hirjee a Melbourne-based analyst for Deutsche Bank, wrote in an April 12 report.