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Wednesday, 23 March 2016 | MYT 2:06 PM

Woodside scraps Australian Browse LNG project as glut bites

MELBOURNE: Woodside Petroleum and its partners have shelved plans to build the US$30 billion Browse floating liquefied natural gas (LNG) project off Australia in the face of global oversupply, spelling the end of an era of mega LNG projects.

The shelving of the project follows an 80% plunge in Asian LNG prices over the past two years after a construction boom that is set to make Australia the world's top LNG exporter.

Browse is one of five projects now stuck on the drawing board in Australia amid a glut of new supply, including from Chevron's newly commissioned US$54 billion Gorgon project and exports from the United States.

The move came as no surprise after Woodside chief executive Peter Coleman flagged last month that now was "not the time to be reckless" in spending capital and that the project had failed to line up any customers for Browse LNG.

Browse faced tough hurdles as its costs per tonne were higher than rival projects in places such as Papua New Guinea and North America and large-scale floating LNG was unproven technology.

"These factors, combined with the greatly reduced appetite for large-scale greenfield investments in the current market conditions, made it quite a herculean task to achieve partner alignment to sanction Browse," said Saul Kavonic, an analyst with consultants Wood Mackenzie.

This is the second time Browse has been sent back to the drawing board. The partners ditched plans in 2013 for an onshore project, that analysts estimated at US$45 billion, at a site opposed by green groups and some Aboriginal landowners.

The partners then spent US$100 million redesigning the project to floating LNG, slashing costs by 35%. Despite the savings, Coleman said Browse would not have been profitable at today's oil price around US$41 a barrel.

"Unfortunately, with pricing falling away from us, that cost reduction doesn't get us to a breakeven price that's low enough for us to feel comfortable making an investment at this point in time," Coleman told Reuters in an interview. "It's very disappointing in the scheme of things as this is a key part of our growth story." 

Woodside's shares fell 1.1% on Wednesday.

Not only is it a blow to Woodside, but it's painful for its Japanese partners, Mitsui & Co and Mitsubishi Corp, which together paid US$2 billion for a nearly 15% stake in 2012, and PetroChina, which paid US$1.63 billion for an 11% stake in 2013.

The other, larger partners are Royal Dutch Shell and BP Plc.

Woodside has never said how much the floating LNG project would cost, but consultants Wood Mackenzie estimated it at US$32 billion.

It still wants to develop Browse, and its preferred option remains floating LNG, with Coleman pointing to the possibility of using even newer technology than Shell is developing.

Any future developments would be phased rather than pouring tens of billions of dollars upfront into developing the full 16 trillion cu ft of gas all at once, he said.

Several analysts said the longer Browse is delayed, the greater the chance the gas might be used to supply the North West Shelf project, Australia's oldest LNG plant, around 900km away, when it needs new supply in the next decade.

Woodside, operator of the North West Shelf, had considered that route years ago, but Coleman said pipeline laying technology would have to improve significantly to make that option competitive. - Reuters

Tags / Keywords: Corporate News , Oil & Gas

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