News Post

Woodside Petroleum has persuaded its partners to commit to detailed engineering design work on their $40 billion Browse floating liquefied natural gas project in Western Australia but faces an uphill task to reduce costs and find customers.

The decision to start front-end engineering and design (FEED) builds on the momentum created by last week's deal between Woodside and the WA government on domestic gas supplies from Browse and on the development of a supply base.

Those arrangements were required to secure WA Premier Colin Barnett's nod for the project but are expected to make the costly project even more difficult to get over the line.

"The project remains challenging given the remoteness of the resource and the complexity of the development," said Andrew Smith, Australian chair of Royal Dutch Shell, Woodside's biggest partner in Browse LNG and the provider of the floating technology.

The venture would involve three large production ships sited at the Torosa, Brecknock and Calliance fields off the north-west coast, with development staggered over several years.

Browse LNG had initially been planned as an enormous onshore plant at James Price Point on the remote Kimberley coast but the partners scrapped that just weeks before a final investment decision was due, after finding it would cost $80 billion or more.

Woodside chief executive Peter Coleman said the decision to enter FEED on the reworked floating project was a "significant step" toward developing the 15.4-trillion-cubic-feet gas resource. He pledged the company would work with government, local industries and communities "to realise potential opportunities from this mega project".

Woodside reiterated its target of giving the go-ahead for construction in the second half of 2016. But it has yet to find customers to buy the LNG amid a surplus of gas in Asia that Citigroup said this week could last until 2022 or 2023. Citi is assuming Browse FLNG will get the green light only in mid-2017.

"It just looks quite challenging in this market," UBS analyst Nik Burns said of Woodside's LNG marketing task, which will involve about 1.2 million tonnes a year from each vessel.

"LNG buyers will be saying, do we need to rush to make a decision at this point in time?"

But LNG sales contracts are expected to be a prerequisite for lenders to the project, which is expected to be more than 50 per cent debt funded.

"We expect that on the debt side that there would be a greater degree of comfort around the project if the volumes that Woodside was proposing to sell from Browse had a home," Mr Burns said. 

Just how much it will cost will be determined through the FEED work, but Shell's Prelude FLNG venture is costing at least $US12 billion, leading to estimates that Browse will cost at least $40 billion.

The final equity stakes have now been finalised in the project, after the partners earlier held different stakes in the various offshore licences. Woodside's share is 30.6 per cent, less than the 31.3 per cent it had signalled as likely. Shell has 27 per cent, BP 13.3 per cent, a Mitsui-Mitsubishi venture 14.4 per cent and PetroChina 10.67 per cent.