Australian energy giant Woodside Petroleum has shelved its $40 billion Browse liquefied natural gas project because of the collapse in oil prices.
Woodside, which holds a 30.6 per cent stake in the project off the north coast of Western Australia, said its joint venture partners did not have the confidence to go ahead with the massive capital spend necessary to build the project in the current energy environment.
“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.
LNG prices are linked to the oil price which has fallen from around $US100 a barrel two years ago to near $US40 now.
The project, situated off the Kimberley coast, has been a source of controversy since first proposed.
Original plans to build an on-shore LNG plant at James Price Point near Broome were defeated by a public campaign driven by environmentalists and others including singer Missy Higgins and businessman Geoff Cousins.
The plan split the indigenous community with some supporting a multi-billion compensation deal and others claiming the plant would be culturally damaging.
That plan was abandoned in April 2013 in favour of innovative off-shore floating LNG plant technology delaying development of the huge Browse gas resource yet again.
The further deferral of the project, which was targeted for a go-ahead later this year, is another blow to the Western Australian resources sector, already struggling with a slump in investment as the wave of new project construction initiated during the commodities boom peters out.
Mr Coleman had given an inkling of the bad news in February when he sounded particularly downbeat about the project at the full-year results, in contrast to his earlier optimism about its prospects, Fairfax Media has reported.
He noted a lack of appetite among LNG buyers to commit to long-term purchase contracts, necessary to underpin the economics of the huge investment. He also noted that while progress had been made to reduce costs and improve economics at the venture, the effect of those had been wiped out by the continuing drop in oil prices.
Mr Coleman said Browse had been subject to extensive analysis.
“We have undertaken a comprehensive and rigorous process to assess all elements of the development,” Mr Coleman said in a statement.
“The decision represents a disciplined approach to large-scale capital investment and is consistent with our requirements for a development concept to be commercially robust across a range of scenarios.”
Woodside said it remained committed to the “earliest commercial development” of Browse gas and that floating LNG remained its preferred solution. It now plans to work with its partners to look at how the project may be developed in the future.
The shelving of browse leaves Woodside without any major new growth projects after its $11.6 billion bid for Papua New Guinea based Oil Search was rejected late last year. It raises expectations that Woodside will be forced to look for new takeover opportunities.
Woodside shares slid as much as 1.2 per cent to $27.05 in early trading on Wednesday. Stakeholders in Browse include BP, PetroChina and the MIMI joint venture between trading giants Mitsui and Mitsubishi.
– with AAP and ABC