Woodside Petroleum Ltd and partners, including Royal Dutch Shell PLC and BP PLC, have scrapped plans to develop the US$40 billion Browse liquefied natural gas (LNG) project in Australia after the plunge in oil and gas prices.
Australia’s second-largest oil and gas producer will not go ahead with the floating LNG (FLNG) development after completing engineering and design work, the Perth-based company announced yesterday.
Citing an “extremely challenging” market, Woodside said the Browse venture would prepare a new plan and budget for developing the gas resources off Western Australia.
More than US$400 billion of proposed energy projects have been delayed since the middle of 2014 and pushed into next year and beyond as oil prices slid about 60 percent in the past two years, consulting firm Wood Mackenzie Ltd said.
The LNG market, in particular, is facing an oversupply as US exports add to a wave of shipments from Australia.
“We’ve got a glut of LNG at the moment and a large number of potential projects out there,” Neil Beveridge, a Hong Kong-based analyst at Sanford C. Bernstein & Co, said by telephone. “The interesting question for Woodside is: ‘What will they do next?’ This removes an organic growth driver.”
Woodside had intended to make an investment decision on Browse in the second half of this year, relying on LNG technology to process the gas offshore.
The company said last month that the project needed further cost reductions and did not have any firm sales.
The floating LNG project would have cost 35 percent less than a previous plan to develop Browse with an onshore plant in Western Australia, Woodside chief executive officer Peter Coleman said. That original project was estimated to cost more than A$80 billion (US$61 billion).
“It’s very, very difficult for us to invest in this price environment,” he said.
Shares in the company dropped 0.9 percent to close at A$27.13 in Sydney, taking their decline this year to 5.5 percent.
“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,” Coleman said in the statement.
PetroChina Co (中石油), BP and Japan Australia LNG Pty, a venture between Mitsubishi Corp and Mitsui & Co, are also partners in Browse. UBS Group AG in 2014 estimated that developing the three Browse fields would cost about US$40 billion.
“Going forward, Woodside’s focus will be on delivering phased and sustainable developments that balance capital exposure and revenue with the realities of the commodities cycle,” Coleman said in a statement.
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