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Petronas to decide on floating LNG project by June.

Malaysia's Petronas is targeting a final investment decision by June for its floating LNG (FLNG) liquefaction project offshore Sarawak. When operational, the 1 million tonnes per year (mtpy) FLNG1 project will be the world's first such facility, the firm said in a financial performance report.

The project is eyeing a 2015 start-up, and plans are under way for a second facility offshore neighbouring Sabah, a company spokesman reportedly told International Oil Daily.

Royal Dutch Shell is also working on its 3.6 mtpy Prelude FLNG off Western Australia, which received the final investment decision (FID) in May last year and is expected to be operational by 2016-17. Japan's Inpex is also eyeing an FLNG plant offshore East Timor.

Meanwhile, the 3.8 mtpy Melaka LNG terminal, Malaysia's first regasification facility, will now start in August this year -- a four-month delay from the original start date in April. The Petronas-owned terminal will receive some 3.5 mtpy of LNG from Australia's Gladstone LNG project, where first gas is expected 2015, as well as from other sources in the company's supply portfolio. The imports will be piped into Malaysia's gas distribution network.

Increased efforts to develop reserves and import LNG come amid declining hydrocarbon production in Malaysia.

Petronas' total oil and gas output from April to December last year fell 3.5 per cent from a year earlier to 2.04 million barrels of oil equivalent per day (mmboed), due to falling crude and condensates production. Petronas attributed the decline in production to dwindling reserves, operational challenges and the political situation in Sudan, where the company has interests.

Natural gas production, however, remained stable thanks to new Turkmenistan output and ramped-up Sarawak production, hitting 1.24 mmboed in the nine months to December -- up a slight 0.2 per cent from a year previously. LNG sales also rose 7.9 per cent to 20.6 million tonnes in the same period on better plant performance and a doubling of trade volumes. The firm said its "future focus will be on increasing trading positions in the UK and Europe."

Domestic gas sales, at 2.3 billion cubic feet per day (bcfd) in the nine months ending in December, were down 10.1 per cent from a year earlier. Petronas said upstream challenges resulted in lower feed-gas supply to peninsular Malaysia. To help offset this, Petronas is strengthening Malaysia's energy security by sourcing additional volumes from the Malaysia-Thailand joint development, which will feed its domestic pipeline network.

The firm's profits hit RM55.6 billion ($18.3 billion) in the April-December period, up 10.6 per cent from a year ago thanks to higher crude and product prices. Profits, however, fell 34 per cent in the October-December quarter to $5.1 billion due to one-off gains stemming from the initial public offerings last year of two of the company's subsidiaries -- Petronas Chemical Group and Malaysia Marine and Heavy Engineering Holdings.

Petronas' ratings stayed steady, with Standard & Poor's saying they are consistent with the company's "minimal" financial-risk profile.


Meanwhile, the US-based Murphy Oil announced a new deepwater gas discovery in Block H in Northwest Sabah province offshore Malaysia, which will be developed as part of a floating LNG (FLNG) project.

The deepwater gas discovery offshore Malaysia is called Buluh following the Rotan and Biris discoveries made by the firm in Block H in 2007 and 2008, and the Dolfin discovery made in 2010. The Buluh discovery will help determine the future capacity of a planned FLNG vessel to monetise reserves from the remote deepwater block. Over 2012, Murphy Oil plans to drill up to four more wells in Block H to target new exploration prospects and to appraise the Rotan discovery.

Future gas discoveries could also be tied into the planned FLNG vessel to be leased from Malaysia International Shipping Corporation (MISC) and set to start commercial operations in 2015/16.

Murphy Oil might want to market LNG from Rotan to a planned 1-million-tonnes per year (mtpy) regasification terminal at Lahad Datu in East Sabah, given its proximate location. LNG supply costs at Rokan could increase as a result of the project's deepwater location, potentially creating LNG price-negotiating difficulties with Malaysia's Petronas Gas Berhad, given the relatively low gas-price tolerances of local consumers.

Malaysia's first regasification facility Melaka LNG terminal will now start in August this year

Rotan Gas Boost

Independent oil exploration company Murphy Oil has announced a new deepwater gas discovery in Block H, located in Northwest Sabah province offshore eastern Malaysia. Murphy Oil confirmed that total depth (TD) had just been reached on an exploration well in Block H, which the company described as a "nice gas discovery" in its fourth-quarter 2011 results conference call.

The drilling of the exploration well follows Murphy Oil's completion of a 1,666 sq km 3D seismic survey over Block H in mid-July 2011. This seismic programme may have informed the location of the exploration well, which has resulted in the Buluh gas discovery. No gas-reserve estimates have been announced in connection with the discovery. Murphy Oil clarified that Buluh could help inform the future size of a planned FLNG facility to be deployed at Block H.

Murphy Oil initially planned to use the FLNG plant to monetise the Rotan and Biris discoveries in Block H, which were made in 2007 and 2008 respectively. The Rotan field has proven and probable (2P) reserves of 275 bcf, while the Biris discovery had estimated 2P reserves of 250 bcf, although the remote location of Block H in the outer areas of Northwest Sabah province could have made monetisation via pipeline to the onshore Sabah Oil and Gas Terminal rather expensive, perhaps accounting for the FLNG monetisation solution.

In 2011, there were reports that Murphy Oil was considering leasing a 300-metre-long vessel for the FLNG facility from Malaysia International Shipping Corporation (MISC)--the shipping arm of Malaysian NOC Petronas Nasional Berhad. Front-end engineering and design (Feed) work on the vessel was being undertaken by France's Technip and South Korean company Daewoo with a view to commercial operations launching in 2015/16. While an initial capacity of 1.2 mtpy was being considered for the vessel, this is now being reconsidered. A decision might only be reached later in 2012 after Murphy Oil has completed a multi-well exploratory drilling programme in Block H targeting new exploration prospects and to appraise the Rotan discovery. The next well in this programme will target the Bunga Lili prospect, a potentially larger feature located nearby to the Buluh gas discovery.

Outlook and implications

Going forward, Murphy Oil will be considering monetisation options for gas discoveries made in Block H Murphy Oil works alongside Petronas Carigali, which has a 20 per cent stake in the Rotan and Biris discoveries. Murphy Oil will probably look at monetisation options within Malaysia for LNG produced by Rotan, given the size of the Rotan and Biris discoveries and because the local market is in need of gas. Moreover, Malaysia will soon have capabilities to consume as well as export LNG, given Petronas' plans to construct three regasification terminals in Malacca, Johor and Perak states on Peninsular Malaysia.

These projects aim to boost natural gas supply availability on Peninsular Malaysia, in light of the difficulties in ensuring reliable feedstock supplies for power plants operated by state electricity company Tenaga Nasional Berhad.

Petronas has already taken steps towards securing supplies for some terminals -- for example by signing a heads of agreement (HoA) with the Qatargas II project for 1.5 mtpy of LNG in July 2011, and a binding gas sales and purchase agreement (GSPA) with the Gladstone LNG (GLNG) liquefaction plant in Queensland, Australia, in June 2009.

The FLNG project might therefore instead supply a planned LNG terminal in Lahad Datu in East Sabah, which will provide gas to industrial consumers in the region. The Lahad Datu terminal could have a capacity of 1 mtpy, although Petronas Gas Berhad has said this could be scaled up prior to construction launch, depending on local demand projections.

The proximate location of Rotan to Lahad Datu could make it an attractive monetisation option. Rotan's deepwater location, however, could push up the cost of LNG, potentially creating affordability issues for terminal developer Petronas Gas Berhad, which sells natural gas at state regulated prices to industrial consumers.

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Publication:Oil & Gas News
Geographic Code:9MALA
Date:May 29, 2012
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