March 27, 2014 1:00 pm JST

Japan's JGC, South Korea's Samsung Heavy to build $2B offshore LNG rig

YOSHIFUMI UESAKA, Nikkei staff writer

TOKYO -- Japanese engineering giant JGC will construct an offshore liquefied natural gas plant together with South Korea's Samsung Heavy Industries. This marks a significant shift for JGC from its focus on onshore energy projects.

     JGC will be the first Japanese company to construct a floating liquefied natural gas (FLNG) plant, which will extract natural gas from undersea fields and then cool and liquefy the fuel for ship transport.

     The construction of an offshore LNG plant carries many more risks than that of an onshore plant, including high waves, strong winds and deep water.

     It is scheduled to go onstream as early as 2018.

Best of both rivals

JGC and Samsung Heavy won an engineering, procurement and construction (EPC) contract for the project in Malaysia from the state-run oil company Petronas in February. The two companies beat out a consortium including Japan's IHI, MODEC and Toyo Engineering. MODEC is one of the world's two biggest FPSO builders.

     Petronas and JGC engineers have since been meeting at JGC's head office in Yokohama to work out the plant's design.

     The project will be located 185km off the eastern Malaysian state of Sabah. Part of the project will involve installing liquefaction facilities on a large floating vessel. The plant will also be capable of storing LNG until the fuel is loaded onto tankers.

     JGC is mainly responsible for the engineering and procurement of LNG facilities, while Samsung Heavy will construct the hull as well as modular units.

     The total project is estimated to cost about 200 billion yen ($1.96 billion), with JGC's portion believed to be worth half that.

     Offshore LNG plants require higher initial investment than onshore plants. But unlike onshore LNG plants, which become white elephants once gas fields dry up, offshore LNG plants can be moved to fresh fields.

     Only two FLNG projects have ever been completed, including one operated by Royal Dutch Shell off Australia. EPC contracts for the two projects were both awarded to the French engineering firm Technip.

     JGC successfully grabbed the FLNG deal in Malaysia thanks to its track record of constructing onshore LNG plants and its modular design of prefabricating parts, devices and equipment, a senior JGC official said.

     The plants built by JGC currently account for approximately 30% of global LNG production.

Whole different design

JGC has helped build many plants located in difficult natural environments and areas with questionable security conditions. Among those projects is a natural gas plant in the Algerian desert, where dozens of people, including JGC employees, were killed in a hostage crisis last year.  

    JGC also won a front-end engineering and design contract for an LNG plant in western Siberia last year, which is expected to be a challenging project given the region's frigid climate.

     The Malaysia project will use a total of 60km of special metal pipes to extract natural gas under waters as deep as 1,500 meters. These pipes have to handle the stress of high waves and strong currents. JGC plans to use double the number of flex points on the piping to accommodate this.

     JGC will make the weight of the FLNG plant heavier than that of a floating production, storage and offloading vessel to allow it to roll or pitch with a longer period.

     The LNG facilities to be installed on the deck of a floating vessel will cover an area of 18,000 sq. meters, 40% to 50% less than onshore LNG facilities with the same production capacity.

     Offshore oil and gas fields are expected to account for 37% of overall oil and gas fields around the world in 2020, up from 27% in 2000.

     Given the shale gas revolution, there is growing uncertainty over the future of the global gas supply-demand balance. But JGC and other Japanese contractors are expected to benefit greatly from new offshore projects.

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