Australia's Woodside likely to face delays on Browse -analysts

Mon Dec 5, 2011 3:38am EST

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* Woodside says has not changed plans for Browse

By Rebekah Kebede

PERTH, Dec 5 (Reuters) - Australia's Woodside Energy is unlikely to meet its target for a final investment decision on its Browse liquefied natural gas project by mid-2012 and may be forced to consider relocating the project, according to industry analysts.

Woodside has struggled to reach a consensus with its joint venture partners on its preferred site for Browse LNG project's processing plant at James Price Point in northwest Australia, while also facing local opposition.

"The end of next year would be the best case outcome (for final investment decision) in our opinion," Mark Greenwood, head of energy research at Citi in Sydney, said.

The view is shared widely among industry analysts, some of whom think a Browse final investment decision is more likely to be pushed back into 2013.

"We think that they might be in a position where they need to optimise or reconsider the option and that could take time" Greenwood said, referring to the joint venture partners.

Woodside owns 50 percent of Browse. Its joint venture partners are BP, Chevron, BHP Billiton and Royal Dutch Shell.

Industry analysts say Woodside's gas reserves from the Browse Basin are now more likely to be redirected to its existing North West Shelf LNG plant, also in northwest Australia, an option that may provide a better return on investment.

Redirecting the gas would mean that Woodside and its partners would have to wait for some years until the North West Shelf depletes its current gas reserves and can process the Browse gas reserves for export.

"From a return on capital perspective, our analysis suggests a higher return from the North West Shelf option, although the net present value could be lower than a timely James Price Point because of the delay in monetizing the assets," Greenwood said.

Woodside said it has not changed its plans for the Browse project.

"There has been no change to Woodside's position on the Browse LNG Development," Woodside said in a statement on Monday, adding that it is committed to locating the plant at James Price Point. The company has also already issued invitations to tender for work on its onshore plant.

BUYER DOUBTS & RISING COSTS

Meanwhile, the lack of agreement among the joint venture partners has likely eroded the confidence of potential customers for the Browse project's liquefied natural gas.

"It's clear that the joint venture partners are not that enthused about that option and that means that the Asian buyers are not seeing it as a credible development," Adrian Wood, an analyst with Macquarie Equities Research in Sydney, said.

LNG developers typically try to sell around 85 percent of the total volume of LNG, along with some project equity, before making a final investment decision on a project to help underpin the high capital cost of LNG projects.

And as the decision-making process wears on, costs are increasing rapidly and delays could threaten the economic viability of the Browse project, analysts said.

"All this time stagnating is eroding the economics very quickly because we are seeing upstream cost inflation in Australia of anywhere between 10 and 15 percent per annum," Macquarie's Wood said.

"If in 12 months time, we're no further down the track, what looks like a marginal project today is probably uneconomical."

Given the rising costs, some in the industry said a floating LNG might be a more likely option.

"Generally speaking, I think the floating option's cheaper than just about anything else," Di Brookman, an energy analyst with CLSA in Sydney, said, but added that the presence of an offshore reef may limit that possibility for environmental reasons.

Shell, one of the joint venture partners in the Browse project, is currently developing what it expects to be the world's first floating LNG project, Prelude, off the northwest coast of Australia.

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