Australia’s Woodside shelves planned $40bn LNG project

Woodside Petroleum has shelved plans to develop the US$40bn Browse liquefied natural gas project, the latest big energy development to be put on ice as oil and gas prices tumble and this could be good news for Nigeria’s NLGN.

Woodside, Australia’s biggest oil and gas company by market capitalisation, said it and its partners had halted further work on the project “considering the current economic and market environment”. Asian LNG prices have declined 45 per cent over the past year.

Peter Coleman, Woodside chief executive, said: “Woodside remains committed to the earliest commercial development of the world-class Browse resources … but the economic environment is not supportive of a major LNG investment at this time.”

Woodside holds a 30.6 per cent interest in Browse, which is located 425km off the coast of Western Australia and would eventually have encompassed a floating LNG development.

It began work on the project last June. Other major partners in the project are Royal Dutch Shell, with an interest of 27 per cent, and BP with 17 per cent.

The remaining two were Japan Australia LNG, a joint venture between Japan’s Mitsubishi and Mitsui, as well as a subsidiary of PetroChina.

The industry faces a supply glut with several big Australian and US LNG plants either recently entering production or about to begin exporting gas to Japan, China and South Korea. Demand has weakened in these three big markets over recent weeks due to a warmer than normal winter and tepid economic growth.

Australia is forecast to overtake Qatar as the world’s biggest LNG exporter by 2018, when annual production is set to more than triple to 86m tonnes.

Dale Koenders, analyst at Citi, said Woodside’s decision was not a surprise, and that other LNG projects awaiting a final investment decision could face similar delays.

“Given that oversupply in the market is expected until 2021-22 any projects looking for sanction before 2017 are at risk of delays,” he said.

Shares in Woodside fell as much as 1.3 per cent to A$27.01 in early Sydney trading and are down almost a fifth over the past 12 months.

It took more than six years to build, US$54bn to finance and 800km of pipelines to make it work, but Chevron’s massive Gorgon gas project off the coast of Western Australia is poised to ship its first cargo.

The timing of the Browse cancellation coincides with rival Chevron’s US$54bn Gorgon gas project in Western Australia coming on stream. The LNG project, one of the world’s largest, took more than six years to build and was commissioned at the height of the commodities boom amid soaring demand for energy and resources from Asia.

Energy groups have recently shelved projects worth hundreds of billions of dollars and slashed capital spending as a slide in oil prices, caused by a supply glut, began to bite. Brent crude, the global benchmark, is down 35 per cent over the past 12 months.

The decision is the second major blow for Woodside after it walked away from a A$11.6bn bid for smaller rival Oil Search amid low oil prices.

Woodside’s Browse project was expected to be one of the world’s first commercial developments of floating LNG technology — which produces gas on platforms that float on the ocean above gas resources.

Neil Beveridge, analyst at Bernstein, said the decision not to pursue Browse suggests the technology and costs of floating LNG are not yet competitive.

“The Browse joint venture has been pursuing a floating LNG scheme to reduce costs to make the project more competitive in a lower price environment and overcome high construction costs in Australia,” he said.

He added that the decision made it more likely Woodside would pursue merger and acquisition opportunities overseas.