The slump in commodity prices has claimed another scalp after Woodside Petroleum put on hold its multi-billion dollar Browse liquefied natural gas project.
Woodside, which holds a 30.6% stake in the project 425km off the coast of Western Australia, said its partners in the development had decided not to proceed.
“We have undertaken a comprehensive and rigorous process to assess all elements of the development,” Woodside chief executive Peter Coleman said in a statement on Wednesday.
“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 chief executive Peter Coleman said in a statement on Wednesday.
“Accordingly, we will use the additional time to pursue further capital efficiencies for Browse.” Woodside has until 2020 to make a final decision on whether to go ahead.
It follows the decision by AGL to pull out of its planned coal seam gas development at Gloucester in New South Wales citing falling oil and gas prices. Origin Energy recently dropped out of Australia’s top 20 listed companies amid a falling share price and investor concerns about its investment in the huge Gladstone LNG project in Queensland.
Oil and gas prices are closely correlated on international commodity markets. Crude has recovered from the 13-year low of $28 reached in January but a barrel of benchmark Brent is still only around $41 – well below the break-even mark of $50 flagged by Woodside last year.
The news was welcomed by conservation groups, who claimed that falling prices and the spread of renewable energy meant that the massive project was unlikely ever to go ahead.
“The world has changed dramatically, climate change is here, renewables are surging and this decision today signifies the end of the Browse project,” said Martin Pritchard, director of Environs Kimberley.
‘Woodside and its partners have spent hundreds of millions of dollars on this project and the truth is that the opposition to it has probably ended up saving the company.
The lessons learned are, don’t industrialise the Kimberley if the community doesn’t support it, it’ll save you a whole lot of money and avoid reputational damage.”
Woodside had originally planned to build an onshore base for the Browse field, which contains an estimated 15 trillion cubic feet of dry gas and 436m barrels of condensate, at James Price Point near Broome. But local opposition forced the company to abandon the idea in favour of the floating facility.
The company, whose partners on the venture include Shell, BP and PetroChina, had been awaiting the completion of the main engineering and design work on the project in order to make a decision on whether to go ahead.
Coleman said in February that it now required a break-even of $35 and that the company was trying to squeeze extra savings out of the project.
In a statement to the ASX on Wednesday, the company said: “Woodside has been focused on delivering targeted cost savings and value enhancements. While significant progress was made to improve project value, this has been offset by an extremely challenging external environment.”
Fat Prophets analyst David Lennox said Woodside now had four years to make a final investment decision and future development would take around six to seven years.
“There’s plenty of time for the energy prices to recover,” Lennox said. “There’s nothing bad about the decision, apart from the fact that when this would have come on stream they’ll be looking for that growth from somewhere else.”
Woodside’s shares fell 0.58% to $27.21 on Wednesday morning.
By Martin Farrer
Source: The Guardian
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