By ROSS KELLY
SYDNEY -- Woodside Petroleum said Friday it has shelved an
onshore gas-export project in Australia estimated to cost over
$40 billion to build, the strongest sign yet that the country's
energy construction boom may be
Natural gas from the Browse development, which also counts
Shell, BP and Asian companies as shareholders, will no longer
be piped to a processing facility at James Price Point on the
Western Australia state coast, Woodside said in a statement
The decision means a development of one of Australia's
biggest natural gas resources will be pushed back by at least
two years, increasing the risk it will have to compete for
customers with anticipated gas export projects in North America and East
Africa. Woodside and partners can submit new development plans
to regulators, but securing approvals is often slow and
Woodside, Australia's second-biggest oil company by output
behind BHP Billiton, and partners have spent almost 2 billion
Australian dollars ($2 billion) investigating an onshore plant
at James Price Point. But Woodside said Friday it "doesn't meet
the company's commercial requirements for a positive final
The facility would have chilled the resource into liquefied
natural gas, or LNG, for export to Asian utilities by
International energy companies have committed billions of
dollars to build seven LNG projects in Australia, positioning
the country to overtake Qatar as the world's biggest exporter
of the fuel by 2017. Companies like Shell, Chevron and
ExxonMobil are drawn by Australia's vast gas reserves, stable
political environment and proximity to
fuel-strapped Asian economies.
Construction, however, has been marred by a series of cost
blowouts triggered by labor shortages, technical challenges and
a strong Australian dollar.
Browse also has its own challenges: the resources is located
in deep, remote waters, has a high carbon dioxide content and would be
technically difficult to extract. Due to be built in a place
marked with one of the world's longest chain of dinosaur
footprints, the development has faced staunch opposition from
environmental groups and has angered
some traditional land owners.
"Considering a cheaper capital option is prudent under
current circumstances, partly given the uncertain outlook for
LNG demand over the next four or five years," said Tim
Shroeders, a portfolio manager at Pengana Capital in Melbourne.
Pengana doesn't hold Woodside shares.
Alternative options for Browse's estimated 15.5 trillion
cubic feet resource cited by Woodside Friday include using a
floating LNG vessel, which would process the gas out at sea
where it lies. Another would be to pipe the gas to an existing
LNG facility on the coast, such as the Woodside-operated North
West Shelf plant at a later date.
Shell, which owns 27% of Browse, discovered in 1971, wants
to take the floating LNG route.
"We believe Shell's floating LNG technology is the fastest, most
economic and the best technical solution available for Browse,"
Ann Pickard, the head of Shell's Australian operations,
said in an e-mailed statement Thursday.
Shell will use floating LNG
to develop its Prelude natural gas resource near Browse, while
Exxon and BHP Billiton earlier this month laid out plans to use
the technology at their Scarborough
joint venture, also off the coast of Western Australia.
Floating LNG is being pioneered by energy companies seeking
to access gas fields too small or remote to develop using
pipelines and onshore facilities. However, the technology remains untried and
projects face technical risks including withstanding stormy
seas and preventing LNG from sloshing around in storage
Woodside needed to make a final investment decision on James
Price Point by June to fulfil a requirement laid down by the
government of Western Australia. State Premier Colin Barnett
had been a vocal advocate of building a gas processing hub at
James Price Point. Spokespeople for Mr. Barnett weren't
immediately available for comment Friday.
"Ultimately the decision on the development concept is a
commercial one for the joint venture, provided it can meet the
requisite regulatory requirements," said Gary Gray, Australia's
resources minister, in a statement.
Browse isn't the only Australian LNG project under a cloud. Shell has
also raised doubts about the viability of its Arrow LNG joint
venture with PetroChina in Queensland state, citing cost
Dow Jones Newswires