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As an economic proposition, floating LNG (FLNG) looks compelling. It may cost 20 to 25 per cent less to build gigantic floating barges to liquefy natural gas close to offshore wells, rather than pipe the hydrocarbon to a similar facility on dry land, according to analysts at Bernstein. As a political proposition, though, FLNG is trickier. Woodside Petroleum presents a test case.

Last week, the Australian company said it would consider alternatives for its giant Browse offshore development. The $45-billion ($47.7-billion) project, already approved by the Australian government, included a massive investment in a liquefaction facility in Western Australia. At peak construction, the project would have employed thousands of local people. However, soaring labour and construction costs – and somewhat weaker prospects for gas prices – have made the original plan look uneconomical.

Woodside isn't alone in considering a FLNG. Shell, which owns 24 per cent of Woodside and is the second-biggest shareholder in Browse, has already approved a similar project nearby. Its Prelude FLNG facility, under construction in a South Korean shipyard, will be the biggest man-made floating object ever built, with six times the displacement of a nuclear aircraft carrier.

It might seem that it would be more expensive to operate on water than on land. But beyond the savings on sea-land pipelines, FLNG takes advantage of efficient and relatively inexpensive ship-building capacity. The gains could make Browse pay off. Bernstein estimates the internal rate of return at Browse with FLNG of 15.9 per cent, versus a more marginal 13 per cent for the originally-envisioned project.

Local politicians are not impressed. Jobs and investment that were supposed to be Australian may now move far away. Western Australian premier Colin Barnett has sharply opposed FLNG for Browse. He told the Australian press that any new project would have to be reassessed "from square one." That sounds like code for finding a way for government to extract a share of any savings.

Ultimately, the cost savings of new technology almost always win out over traditional interests. FLNG is unlikely to be an exception, if the technology delivers as promised. But its promoters will need to pour oil over some troubled political waters.

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