Woodside scraps $40bn LNG project after price collapse

Woodside Petroleum and partners including Royal Dutch Shell and BP scrapped plans to develop the $40bn Browse liquefied natural gas project in Australia after the plunge in oil and gas prices.
Australia’s second-largest oil and gas producer won’t go ahead with the floating LNG development after completing engineering and design work, the Perth-based company announced yesterday. Citing an “extremely challenging” market, Woodside said the Browse venture will prepare a new plan and budget for developing the gas resources off Western Australia.
More than $400bn of proposed energy projects have been delayed since mid-2014 and pushed into 2017 and beyond as oil prices slid about 60% in the past two years, according to consulting firm Wood Mackenzie. 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 yesterday by phone. “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 2016, relying on LNG technology to process the gas offshore. The company said last month that the project needed further cost reductions and didn’t have any firm sales. The floating LNG project would have cost 35% less than a previous plan to develop Browse with an onshore plant in Western Australia, Woodside chief executive officer Peter Coleman said in a phone interview. That original project was estimated to cost more than A$80bn ($61bn). “It’s very, very difficult for us to invest in this price environment,” he said.
The move by Woodside raises questions about the viability of other large LNG projects waiting to be developed, including ventures in Canada and Mozambique and floating LNG proposals in particular, Beveridge wrote in a report.
Mark Wiseman, a Sydney-based analyst at Goldman Sachs Group, wrote in a report last month that at current oil prices Browse was “highly unlikely” to make significant progress towards approval. Shares in the company dropped 0.9% to close at A$27.13 in Sydney, taking their decline this year to 5.5%.