SOUTHEAST ASIA Shell signature strengthens Malaysia's LNG supply profile

Nov. 1, 1995
Occidental/Nippon Oil-operated gas discoveries, which would be developed in phases for export to the LNG complex at Bintulu. MLNG Tiga production forecast 1999-2005 (Mcf/d). [Source: Wood Mackenzie]

At least five new platforms could be installed in two blocks off Sarawak, following preliminary agreement over gas supplies to the Malaysian LNG Tiga project. The main shareholders of these blocks, Nippon Oil and Occidental, signed the agreement in August with Sarawak Shell and Petronas Carigali. Unlike previous Malaysian LNG projects, gas will be sold first at the platform to Petronas, which in turn will sell supplies to the LNG terminal onshore at Bintulu.

According to British analysts Wood Mackenzie, Shell's entry into the project is particularly important. Shell brings solid LNG operating expertise as well as reserves from its own fields in the Luconia offshore area closer to Bintulu. It also has the commercial clout to reassure Japanese buyers who are being courted by numerous other LNG consortia in the Middle East, Russia and Australasia.

Details of the agreement are unlikely to be ratified until next year. Current indications are that Petronas will take 70% of the equity in MLNG Tiga, with the rest distributed amongst the other three participants in line with the size of their gas reserves. At least one other Japanese company (downstream) is also known to be interested in taking a stake.

Field candidates

Wood Mackenzie puts reserves in the fields likely to be allocated to the project at 6.2 tcf; 5.2 tcf of this is said to lie in fields discovered by Occidental in block SK8. Here there have been four potentially commercial finds to date, all testing gas and condensate.

Jintan-1, from a 47 meter zone in Miocene reef carbonates, was completed in 1992, followed by Selasih-1, Serai-1 and Cili Padi-1 in 1993. The next wave of wildcats over this and neighboring block SK3 yielded a further gas discovery, Saderi-1. However, the drilling program was temporarily suspended this year until completion of discussions over MLNG Tiga.

Nippon Oil's solitary commercial discovery on block SK10 is Helang-1. It may also re-enter Lang Lebah-1/RDL, which had to be abandoned in July 1994, despite finding gas, due to high formation pressures encountered above the primary objective. Wood Mackenzie estimates gas within Helang at 1 tcf.

Jintan's gas is thought to be the first candidate for development, via a central processing/living quarters platform on an integrated deck bridge-linked to a drilling/wellhead platform. Saderi and Sera could be tied in as subsea completions, with a new trunkline carrying processed gas to Bintulu. This would be designed to accommodate extra capacity from future small developments along the route.

Under the second development phase, production platforms would likely be installed on Cili Padi and Selasih, also linked to the new pipeline. Helang, however, would require a separate trunkline to Bintulu. Here Wood Mackenzie anticipates at least one production platform with several satellite wellheads, with Lang Lebah possibly linking in as a subsea completion and sharing the same gas export line.

Details of fields contributed by Shell and Petronas have yet to be confirmed, nor have development plans been finalized. The B11 and B12 discoveries made by Shell in block SK10 are rumored to be under consideration.

MLNG Tiga costs are estimated at $5-6 billion currently. This would include $2 billion for a new LNG plant close to the existing MLNG complex at Bintulu, with initially two trains capable of processing up to 6.6 million tonnes/year. First shipments from the new plant would probably begin in 2000, building up to 900 mcf/d by 2004.

The Bintulu complex also houses the $6.8 billion MLNG Dua processing facilities. Here first deliveries were made this May. In time contributions from the Dua offshore fields and Tiga will build Bintulu into the world's largest LNG complex, capable of exporting nearly 23 million tons/year.

MLNG is buying all output from these two projects. Much of the supplies so far contracted on long-term contracts are going to utilities in Japan, Korea and Taiwan.

Demand for LNG across Asia continues to soar, but so do the number of offshore projects acting as potential sources of gas supply. One of the latest is a planned $5 billion expansion of Australia's North-West Shelf project, in which Shell is also a major player.

However, Wood Mackenzie believes that MLNG Tiga has the edge over competing consortia in the eastern hemisphere. It has the advantage of long-standing business relationships with key buyers in Japan, and geographically, Bintulu is much closer to the main markets than alternate supply bases in Oman or Sakhalin. Theoretically, this should mean cheaper deliveries.

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