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Wednesday, October 10, 2012

Statoil's 2nd LNG liquefaction train not going ahead -- not enough new gas discovered

Norway oil giant Statoil nixes building a second LNG processing plant

Alaska Dispatch, October 3, 2012

Norway's Statoil Tuesday said it will not go ahead with a its second LNG liquefaction train at the 4.3 million mt/year Hammerfest plant, which processes gas from the Snohvit field in the Barents Sea, saying not enough new gas had been discovered to date to justify it.

Analysts said the second plant would have cost about $5 billion and doubled the Melkoya plant's design capacity.

Statoil said in a statement: "Current gas discoveries do not provide a sufficient basis for further capacity expansion."

The Hammerfest plant, on the far northern Norwegian island of Melkoya, is Europe's sole LNG processing facility.

A Statoil spokesman was not immediately available for comment, but spokesman Ola Anders Skauby told Norwegian newspaper Aftenbladet that the decision had not been taken lightly.

"It has been a very difficult decision to make. A challenging scenario made it necessary to do a thorough analysis and we had to go in depth," he said.

"The decision was consensual. I think it was important for all partners to study the options carefully before any decision was taken."  

State-controlled Statoil and its partners last year said they had decided to perform studies on building the second LNG plant at Melkoya, called Train II, with a possible investment decision to be made toward the end of 2013 at the earliest and with the new plant to come online by 2018 at the earliest.

But Statoil said Tuesday that the Snohvit partners would in the immediate future focus instead on optimizing and upgrading Train 1.

"There will be major investments associated with phases 2-4, which include a future compression solution," said Oystein Michelsen, Statoil's executive vice president for Development and Production Norway.

In total, the installation of five new subsea templates and 12 production wells are planned, Statoil said. Skauby told local Norwegian papers that capital expenditure on the Train I expansion involving NOK40 billion ($7 billion) would go ahead.

"This has always been an option. The decision means that we continue to work with existing systems and to develop Snohvit," he said.

Snohvit is one of the bigger gas producers that supplies Europe, and Norway is the second biggest gas supplier to the continent after Russia. 

According to the Norwegian Petroleum Directorate, the Snohvit field in the remote northern Barents Sea is expected to produce 5.85 billion cubic meters of gas in 2012 and Statoil has said the current plans for Train I involve a production life of over 30 years.

Statoil said Tuesday that over the last 18 months the Snohvit license partners had carried out studies for the expansion of the gas export capacity from Melkoya. The increased capacity would enable the accelerated gas production of increased reserves in the Snohvit license, together with existing discoveries in the area, Statoil added.

Statoil said thorough studies had been carried out on two options: expanding the existing LNG train or building a gas pipeline from the Barents Sea connected to the existing pipeline system in the Norwegian Sea. The two options would have the same capacity for accepting gas, and both could receive gas from fields other than Snohvit around 2027-2028. The pipeline solution was studied in collaboration with Norwegian pipeline operator Gassco.

Statoil Tuesday said it hoped for the re-emergence of a Train II at a later date. 

"With new gas discoveries increased capacity may again be considered," Statoil said. 

Snohvit is the first offshore development in the remote Arctic waters of the Barents Sea. Its subsea installations pipe natural gas through a 143-km pipeline ashore to be liquefied at the Hammerfest plant. Partners in the field are operator Statoil (36.79%), Petoro (30%), Total (18.40%), GDF Suez (12%) and RWE Dea (2.81%). 

Skauby told Norwegian papers that despite the decision to call off the Melkoya Train II expansion, the company remained committed to the Barents Sea. 

"Snohvit will live on many many years yet, so we will see if future discoveries will make (more) development feasible in the future." 

Last year Statoil said it was extending its exploration search in the Barents Sea -- after already making massive finds at the Skrugard and Havis prospects in PL532, which were estimated to contain 400-600 million barrels of recoverable oil. Analysts said Tuesday that they were not surprised by the decision on Train II, given that Statoil's Skrugard and Havis finds were oil. 

"I fail to see it as a big decision. Just wait until they drill some more and come up with some more gas finds," said Arctic Securities analyst Trond Omdal. "Train II could be back on the agenda in a year's time." 

Patrick McLoughlin,

Edited by Jonathan Fox,

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