By Andrew Hobbs
WOODSIDE Petroleum has shelved activity on the Browse joint venture project, citing the current economic and market environment.
The announcement came after Woodside and its partners in the joint venture completed front end engineering and design (FEED) work over the project, with the company saying it had been focused on delivering targeted cost savings and value enhancements.
“While significant progress was made to improve project value, this has been offset by an extremely challenging external environment,” the company said.
Woodside chief executive Peter Coleman said the decision was consistent with company requirements for a commercially robust development concept.
“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,” he said.
The company said it would focus on satisfying its work program commitments over the leases, which were renewed in 2015 and are set to expire in mid-2020.
“Accordingly, we will use the additional time to pursue further capital efficiencies for Browse,” Mr Coleman said in an announcement to the Australian Securities Exchange.
The company is expected to pursue a floating liquefied natural gas development option for the permit, located off the Kimberley coast, inspired by Shell’s Prelude FLNG concept.
Speaking with Oil & Gas Australia after the announcement, director of the Masters of Business Administration (Oil & Gas) at Curtin Business School Tim Houghton said the decision was inevitable.
“It had to happen when you look at the macro environment,” he said.
Dr Houghton said that the belief that oil prices are at the bottom of the cycle right now was likely to have played a role in the decision, but it was far from the only factor at play.
“There seems to be clear evidence that Japan is importing more of its LNG through spot market contracts than it has ever done historically, as a proportion of the total gas imported,” he said.
“What that says to me is either they feel they have locked in prices in their long-term contracts that are too high or they are saying… we are not sure the pricing mechanism which relates to gas price or oil price is necessarily the right way to go.”
On the other side of it, the high cost of doing business in Western Australia and the fact that FLNG remains an unproven technology made development of Browse an equally challenging proposition.
“If you look at it form a risk adjusted returns perspective it looks challenging in the short term,” he said.
Woodside holds a 30.6 per cent stake in the Browse joint venture, with Shell Australia holding 27%, BP 17.3%, Japan Australia LNG 14.4% and PetroChina 10.7%.