Over the past two months Australia’s once-promising LNG industry has lurched from crisis to crisis.
Each event, on its own, has not been a show-stopper. Taken collectively, there is a very disturbing pattern of setbacks, delays, cost-blow outs, and curious plans to sidestep environmental protests.
The first shot across the bows of Australian LNG was the decision in California to reject BHP Billiton's plan to “land” gas at an offshore terminal.
Then came news that the Gorgon project had been hit with a massive cost blow out and speculation that the project was struggling to survive – as The Slug suggested as far back as November last year.
Now comes a truly bizarre plan from Woodside Petroleum to send gas from one offshore field some 900 kilometres via a submarine pipeline, rather than build a nearby processing facility, just to avoid an environmental protest.
Capping off all that was news that plans for an LNG development in PNG had run foul of the most basic of problems, not enough gas.
The InterOil proposal was always a long shot, but it is worth adding to the growing pile of LNG setbacks.
The main game, however, is the combination of problems at Gorgon, and Woodside’s struggle to develop its Pluto, Browse and Sunrise projects.
At Gorgon, from what The Slug’s been reading, the issue seems to be coming to a head.
Chinese buyers, led by the China National Offshore Oil Corporation, are said to be reviving their interest in Gorgon. One report from Asia late last week suggested that a visit in September by China’s president, Hu Jintao, would be an ideal time to ink a deal with Chevron Corporation and its Gorgon partners.
Hopefully, that’s a correct report of the view from Beijing because the view from New York is somewhat less enthusiastic with one oil industry analyst suggesting a day earlier that Gorgon was in deep strife because its cost had blown out to around $US20 billion.
“In grave trouble” are the key words about Gorgon because it is struggling to lower its unit cost of production, and seeking to fix that problem by almost doubling the size of the development.
Perhaps Chevron will be able to radically revise its plans for Gorgon, though time is short, and the suggested September deadline for a deal with President Hu looks extremely ambitious.
If The Slug was a betting man he would put his money on a delay of at least another year before a final Gorgon decision such are the problems with costs and a contentious landing site on Barrow Island.
Woodside, it seems, is struggling with similar issues – plus a variation on the PNG crisis, not quite enough gas.
When Woodside boss, Don Voelte, suggested last week that he might favour a plan to pipe gas from the Browse fields to be incorporated with the Pluto and other associated North West Shelf developments, the explanation was centred on the need to find an acceptable onshore landing site.
The Slug’s view is that while environmental objections are an issue it is also possible that gas from the Browse would neatly “top up” what still seems to be a shortfall at Pluto.
Whatever the reason for the problems at Gorgon, Pluto and Browse, it all comes back to the central question of what’s happening to the great LNG boom:- it is in danger of becoming a fizzer because Australia’s resources boom is driving costs through the roof, environmental protests are getting louder, and customers are being too picky or refusing to pay a fair price for gas.
