Royal Dutch Shell (RDSA) may place orders for at least three floating liquefied natural-gas (FLNG) plants for about $5 billion each to explore trapped deposits around the world. Shell contracted the Technip-Samsung Heavy Industries consortium for the design, construction and installation of these FLNG facilities.

With its ability to process gas over an offshore gas field, reducing both project costs and the environmental footprint, Shell’s FLNG solution is an important development for the LNG industry. In early October, the company had announced the deployment of its first floating LNG plant off the coast of northwestern Australia. The areas under consideration for the floating LNG plants are Australia, Asia and Africa, mainly due to their large number of isolated gas fields.

High building costs and delays in getting environmental permits have led developers to shelve onshore LNG projects. Shell’s planned vessel for Australian waters could be moved to other fields once production at one field is complete, which in turn will save costs. The company has been significantly investing in both field as well as product developments. However, we want to stay on the sidelines as we don’t foresee much relief through the balance of 2009, given the dire downstream environment.

Sustained earnings recovery for the sector depends on the restoration of global oil & gas demand growth, lifting upstream and downstream volumes, prices and margins. We believe this will occur during the first half of the next year rather than during the rest of the year. As such, we have been taking a Neutral approach to the integrated oil companies including ExxonMobil Corporation (XOM) and BP plc (BP).

Zacks Investment Research
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