Global energy companies have invested $140 billion in six L.N.G. plants in just two and one-half years as Australia has increased production on its way to becoming the largest exporter of the gas in the world.
But investors’ interest in the sector in Australia has cooled recently because of huge costs overruns and in the face of rising competition from North America, where huge new supplies of gas have been tapped from shale.
Woodside’s canceled onshore project, called Browse, had been expected to export enormous amounts of liquified gas to Asia. The shelving of Browse as an onshore plant could spell an end to new onshore gas projects in Australia in favor of offshore plants that can be built at a lower cost and face fewer environmental and landowner hurdles.
“This decision will surprise few, as the proposed onshore development always looked too economically, technically, environmentally and socially risky for too little reward,” analysts at the bank Macquarie said in a research note.
Woodside also appears to be pivoting its focus toward North America, confirming Friday that it had lodged an expression of interest in developing a Canadian L.N.G. project.
Browse was to be Woodside’s biggest such onshore L.N.G. development yet, but it had been plagued by controversy over its proposed location at James Price Point on Australia’s northwest coast, coming under fire from environmentalists and some indigenous landowners.
The site is home to the world’s largest dinosaur footprints and sacred Aboriginal sites.
Peter Coleman, the chief executive of Woodside, said any new development would have to provide significant cost savings, adding: “Our customers are saying to us very clearly, ‘No longer can we pay for your expensive projects.”’
Many in the industry consider a floating L.N.G. plant to be the most likely fallback plan.
Analysts at JP Morgan have estimated that a floating project would mean a 20 percent saving in costs, resulting in a capital expenditure of $35.5 billion, versus $44.6 billion for the onshore development option.
Estimates of the cost of the onshore plant vary, but some analysts had said it could be as much as $48 billion.
Of seven L.N.G. plants under construction in Australia, all of which are due to come online in 2014 or later, four have already announced budget blowouts ranging from 15 percent to 40 percent.
Woodside owns a 31 percent stake in Browse, which it is developing with Royal Dutch Shell, BP, PetroChina, Mitsui and Mitsubishi.
Shares in Woodside, which has a market value of about $30 billion, rose 3 percent on expectations it would develop a less expensive option, but Chiyoda of Japan, which has a contract for the Browse project, tumbled 11 percent.
Building a floating plant in Asia and towing it into place off the coast of Western Australia would be likely to save billions of dollars in construction costs.
Earlier this month, Exxon Mobil and BHP Billiton disclosed plans to build the world’s largest floating L.N.G. vessel off northwestern Australia, producing six million to seven million tons of liquified gas per year, starting in 2020 or 2021.
Browse had been aiming for 12 million tons per year.
Shell, which owns 24 percent of Woodside, has not publicly supported a floating L.N.G. plant for Browse, but Ann Pickard, chairwoman of Shell Australia, has backed floating L.N.G. plants as a good solution for the problems with high costs in Australia.
Ms. Pickard has also championed the plants as a way for Australia to make revenues faster, though unions and politicians in Australia are worried about job losses from going offshore.
Another joint venture partner, PetroChina, said Friday that it was still deciding whether it would invest in Browse and that it was studying the project’s feasibility.
Prime Minister Julia Gillard said the decision had been a commercial one and was not the end of the nearly decade-long boom in resources in the country.
“We haven’t seen the peak of the investment phase into resources yet. And we are yet to see the peak of the production phase,” Mr. Gillard said in Sydney. “So we will be seeing the resources boom at work in our economy for a long time to come.”
Article source: http://www.nytimes.com/2013/04/13/business/global/woodside-petroleum-cancels-onshore-lng-project-in-australia.html?partner=rss&emc=rss