Back in 2011, Shell took the final investment decision (FID) on its Prelude FLNG project and started having a floating liquefied natural gas (FLNG) terminal built in South Korea in order to produce and export LNG from the so-called Browse Basin, about 300 miles off the coast of Western Australia. This project is the first of its kind and represents the attempt to liquefy stranded gas offshore without having to pipe it via a costly subsea pipeline to a land-based liquefaction plant. Shell expects the terminal to be fully operational between 2016-2018, which could approximately coincide with the anticipated first continental US LNG export form Cheniere Energy (late 2015). At that time, with Shell’s proof of concept/technology and operational excellence many onshore-sourced greenfield LNG projects around the world – especially the ones still in FEED (Front End Engineering Design) – could face at the very least economic viability questions. Moreover, it could instead make sense to accelerate the development of apt stranded offshore gas reservoirs – i.e. large enough to be exploited for a minimum project life span of about 20 years – much closer to future growth markets.

Myanmar could suddenly become an even more interesting destination for the more risk-averse Western oil and gas companies searching for long-term profitable revenue streams. Myanmar is in the process of slowly opening up the country and its energy sector to the world. The country formerly known as Burma was ruled by a military junta for decades – from 1962 to 2011, which led to almost complete international isolation. The current – at least referred to as ‘democratic’ – political and economic transition is full of challenges such as ethnic division, strife and persecution of minorities but also offers opportunities for the development of the country by monetizing its rich and high demand natural resources.

Read a 3-part Breaking Energy series on investment opportunities associated with Myanmar’s political changes here.

Note, Myanmar’s diverse ethnic population is a direct result of the country’s advantageous strategic location. It shares borders with the Asian growth engines of China as well as India, and Bangladesh – all countries with vast populations and therefore centers of current and future energy demand. Myanmar itself also has a sizeable population of 51 million people. The following interactive graphic, however, illustrates why the opportunity from both the demographics in the immediate neighborhood and Myanmar’s vast oil and gas potential is marred by almost chronic political risk and lack of adequate infrastructure.

Overlap of Minority Populations and Economic Infrastructure Development in Myanmar (as of September 2011)

Source: The Stimson Center

Interestingly, the above map shows the Rakhine ethnic group along the coastal region of the Rakhine State in Western Myanmar, a crucial and resource-rich part of the country. This region is especially noteworthy for two reasons. First, it is politically unstable and a hotspot for periodic clashes between ethnic Rakhine Buddhists – representing the majority in the country – and Rohingya Muslims. Second, it is the starting point of China’s trans-Myanmar oil and gas pipelines – now existing while in the map above shown as planned – from the deep-sea ports of Kyaukphyu / Sittwe in the Bay of Bengal to Kunming in southwest China. Consequently, this region exemplifies the potential political risk for oil and gas investments onshore.

In this respect, the floating LNG concept could become a game changer. A look again at the map shows no pipeline from Myanmar to the North. Especially the Northeastern tribal states of India are severely undersupplied with energy, thus hindering proper development. Even though the three countries in question – Myanmar, Bangladesh, and India – have discussed a tri-nation gas pipeline for the longest time, it may still turn out to be a “pipedream” – borrowing this expression from Daaman Thandi – a decade from now. Daaman Thandi writes in the Indian Review of Global Affairs:

“The long awaited Myanmar-Bangladesh-India (MBI) pipeline has been dogged by regional geopolitics and political constraints between India and Bangladesh. First proposed in 1997, the 900 km pipeline was set to deliver 5 billion cubic meters of gas from the Swe field in Southern Myanmar to West Bengal via Tripura, Mizoram and Bangladesh.Sixteen years later, the pipeline remains comatose, and shows little signs of becoming a reality.”

Myanmar-Bangladesh-India Pipeline

Source: via Daaman Thandi for the Indian Review of Global Affairs

Thus, floating LNG – i.e. offshore and thereby somewhat mitigating the political risk portion in an investment decision – could take advantage of those huge energy markets in the immediate neighborhood. We could see a rush into offshore gas developments with direct LNG exports via floating terminals from geological formations offshore Myanmar to India if those offshore reserves turn out to be as abundant as expected.

According to the Bangkok Post, Myanmar has “a total of 101 oil and gas blocks – 53 onshore and 48 offshore – (…) under the ownership of state-run Myanmar Oil & Gas Enterprise (MOGE). Interestingly, the newspaper notes that “eleven of the offshore blocks are shallow-water, and 19 are deepwater blocks. Government-owned (…) MOGE has agreed to allow 100% foreign ownership in deep-water blocks, an exception to the 80% cap set out in the Foreign Investment Law.”

Myanmar Oil and Gas Blocks

Source: Bangkok Post

Nevertheless, the production sharing agreements (PSAs) as currently outlined by the government may still require work to get the incentive structure more in line with the accompanied risk in order for more major Western oil and gas companies to take the risky – but potentially in the future very lucrative – plunge into the Bay of Bengal -offshore Myanmar.

Now, why invest in and use floating LNG terminals? First, the following numbers on the Prelude FLNG terminal – provided by Shell – illustrate the massive endeavor:

1. Longer than four soccer fields and displacing six times much water as the largest aircraft carrier, the FLNG facility will be the biggest floating production facility in the world.

2. More than 125 miles is the distance from the Prelude field to the nearest land.

3. 50 million liters of cold water will be drawn from the ocean every hour to help cool the natural gas.

4. The Prelude FLNG terminal is estimated to be the largest floating vessel in the world, measuring 488 metres by 74 metres with a total production capacity of 3.6 mtpa of LNG, 1.3 mtpa of condensate and 0.4 mtpa of LPG.

5. 20-25 years is the time the Prelude FLNG facility will stay at the location to develop gas fields and is designed to withstand the severest cyclones.

Prelude FLNG

Source: Shell

Most importantly, at a time when oil majors such as ExxonMobil, Chevron, and Shell are taking measures to reduce capital spending in an effort to refocus on profitability and return on investment (ROI), innovative development alternatives are in high demand.Especially in Australia, LNG export plant costs have escalated due to competition from rival projects for qualified laborand ‘scarce’ equipment. According to the Oxford Institute for Energy Studies, “LNG plant metric costs are essentially driven by two major factors – the scope (liquefaction only or a complete facility) and the location where local costs are the major driver. It is at this juncture that the floating LNG concept can exhibit several advantages over land-based LNG projects on a case-by-case basis.

In general, floating FLNG facilities/terminals eliminate the need for subsea pipelines to shore as well as loading jetties. Moreover, they reduce the environmental footprint because they allow for positioning the terminal right above the gas field in question. Other substantial costs related to fixed infrastructure investments that are eliminated include gas compressor stations and basic onshore infrastructure such storage tanks and roads. Additionally, Neil Hume of the Financial Times points out that “the plant can be manufactured in more cost-effective locations overseas and there are no land access issues.” Decommissioning is obviously also less complex because the floating terminal can just be redeployed at a different location. Often overlooked but invaluable, it allows the operator/investor to leverage its FLNG project experience and utilize it in other potential offshore opportunities globally, thereby tapping previously considered economically unviable offshore reservoirs.

In sum, to revert back to the above discussed potential for future floating LNG deployment in Myanmar, this concept seems to be ideal to deal with many Myanmar specific aspects of political risk while also allowing for the development of big but far-offshore gas fields in a Cyclone-prone – similar to the waters along Australia’s northern coastline – area.