Shell strikes first LNG sale for Prelude

Energy giant Shell has struck its first third party supply deal for liquefied natural gas from its planned $US5 billion Prelude floating LNG project off the Kimberley coast.

Shell last night said it had struck a binding 25 year year sales agreement with Osaka Gas to supply the Japanese utility with 800,000 tonnes of LNG annually, starting from April 2012.

While the gas will come from Shell's "global LNG portfolio", it will include gas from both the $43 billion Gorgon project on Barrow Island and Prelude once they are in operation. It is the first time that Shell has agreed to directly supply Prelude gas to a third party customer.

The 15 million tonnes per annum Gorgon project, of which Shell owns 25 per cent, will come onstream in 2014 followed by the wholly-owned Prelude venture in 2016.

The Prelude field, 475km north of Broome, contains up to 3 trillion cubic feet of gas, from which Shell plans to produce 3.5 mt of LNG annually for 25 years. It is also likely to process gas from Shell's nearby Concerto and Libra fields, and potentially even the Crux field.

At 600,000t, the Prelude production vessel will be the world's largest vessel, and the world's first operational floating LNG development. A final investment decision is expected next year.

Shell did not disclose the value of the contract, or how much gas would ultimately be sourced from either Gorgon or Prelude.

But based on other recent LNG supply deals, such as Chevron's $90 billion 20 year deal to supply 3mt of LNG from Gorgon annually to Japan's TEPCO, the entire 800,000tpa contract would notionally be worth almost $30 billion over 25 years.