By Charles Kennedy
The crash in LNG prices has claimed a major victim. Woodside Petroleum (OTCPK:WOPEF) and its partners -- which include Royal Dutch Shell (NYSE:RDS.A), BP (NYSE:BP), and PetroChina (NYSE:PTR) -- have decided to cancel a massive LNG project in Australia because the economics no longer work.
The Browse LNG project was planned for Western Australia, a $40 billion floating LNG export facility that would have sent Australian natural gas abroad. Citing the "extremely challenging" market, the project was scrapped on March 22. "It's very, very difficult for us to invest in this price environment," Woodside's CEO Peter Coleman said.
"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., told Bloomberg in an interview. "The interesting question for Woodside is, 'What will they do next?' This removes an organic growth driver."
Browse LNG faced an array of setbacks. The project originally had an onshore site in mind, but ran into stiff opposition from local communities. That led the developers to an offshore floating concept, which actually trimmed costs by 35 percent.
Still, with LNG prices a fraction of what they once were, the decision does not come as a surprise. A handful of other large LNG export facilities that have been planned for Australia are also getting second looks. Browse had failed to secure any customers for its planned capacity, and with LNG prices now down to multiyear lows, it would be much more difficult for this project to turn a profit than for some competing projects that sealed contracts years ago.
For example, Chevron's (NYSE:CVX) $54 billion Gorgon LNG project, which just came online, has raised questions about its long-term profitability. However, Gorgon at least already had most of its capacity under long-term contracts. Woodside's Browse LNG, even if it found buyers, would struggle to make the numbers work with LNG prices so low. The company's chief executive said in February that now was "not the time to be reckless" with spending.
LNG prices for April delivery to Asia averaged just $4.46 per million Btu (MMBtu), about one quarter of the price from just two years ago.
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