Woodside Petroleum’s ambitious $40 billion floating LNG (FLNG) project in the Browse Basin off Western Australia’s Kimberley coast has been shelved because of cost pressures and depressed commodity prices.
- Browse Basin joint venture partners shelve floating LNG project
- Woodside blames “extremely challenging external environment”
- Company says it remains committed to developing gas field
- Project was due to deliver $1 billion in royalties to WA
Australia’s largest oil and gas company announced the decision after an extensive review of the FLNG project to try to drive down the capital cost of the joint venture.
In an announcement to the Australian Securities Exchange, the company said the joint venture partners had “decided not to progress with the development at this time, considering the current economic and market environment”.
“While significant progress was made to improve project value, this has been offset by an extremely challenging external environment,” the statement said.
Woodside said it remained committed to the “earliest commercial development” of the gas field, north of Broome.
The Browse FLNG project is the latest victim of tumbling oil prices and collapsing confidence in the industry.
The project has been mired in disputes within the joint venture consortium, with the original plan for a giant onshore plant at James Price Point (JPP) being scrapped after a blowout in projected costs to $80 billion and a concerted campaign by environmental groups.
In 2013, the floating platform plan in the remote location 425 kilometres offshore – pushed by key partner Royal Dutch Shell – was approved by the partners and eventually won the backing of the WA Government.
Woodside’s website described the development as a mega-project which was “expected to deliver billions of dollars in government revenue, and employ approximately 1000 direct jobs during the operational phase, creating local opportunities during its 40-50 year operations”.
The Government had expected to receive more than $1 billion in royalties over the life of the project.
Economic environment not supportive: Woodside
Woodside chief executive Peter Coleman said the decision represented a disciplined approach to large-scale capital investment.
“(It) is consistent with our requirements for a development concept to be commercially robust across a range of scenarios,” Mr Coleman said.
“Woodside remains committed to the earliest commercial development of the world-class Browse resources and to FLNG as the preferred solution, but the economic environment is not supportive of a major LNG investment at this time.
“Accordingly, we will use the additional time to pursue further capital efficiencies for Browse.”
Woodside holds a 30.6 per cent stake in Browse, while Shell has 27 per cent, BP 13.3 per cent, Petro China 10.7 per cent and a Japanese partnership of Mitsui and Mitsubishi 14.4 per cent.
Woodside said it would now work with the joint venture partners to prepare a new work program and budget to progress development activities, although gave no timeframe for the additional development work.
Disappointment for WA Premier Barnett
WA Premier Colin Barnett championed the Browse project as an economic boost to the Kimberley, and ran a long and politically costly campaign to establish the onshore gas processing hub at JPP near Broome.
Despite Woodside’s decision to not proceed with the onshore plant, Mr Barnett remained committed to the long-term development of JPP as a processing facility or supply basis, with the State Government proceeding with the compulsory acquisition of the land.
Analysis: Browse Basin down the sink
Woodside Petroleum’s decision to shelve the $40 billion floating LNG project in the Browse Basin comes as no surprise, writes Stephen Letts.
Mr Barnett said he was disappointed but not surprised by Woodside’s FLNG announcement.
“Unfortunately Broome and the Kimberley missed a great opportunity a few years ago, an opportunity that may not come back,” he told Macquarie Radio.
“I think it would have been very difficult for them [Woodside] to commit probably north of $50 billion to develop this project when the price of petroleum, including natural gas, is low.
“I expect those prices to recover. That may take two to three years and then maybe this project will get its opportunity.”
However, Mr Barnett said there was no way to be sure.
“You do have the Shell Prelude project under construction and the INPEX Ichthys project off the Kimberley coast, so there will be activity going through Broome. But not as great as if Browse had gone ahead,” he said.
The Browse project leases were renewed in 2015 and run through to mid-2020.
The three leases are estimated to contain contingent resources of 15.4 trillion cubic feet of dry gas and 453 million barrels of oil condensate.
The State Government signed an agreement with the joint venture partners last June to guarantee the supply of gas to the WA domestic market.