The answer is that much of what happened last week was for show purposes only.
The Browse deal, in which PetroChina said it would buy between two-and-three million tonnes of LNG a year, is very much a tentative first step on what promises to be a tortuous approvals and financing process for Woodside Petroleum.
The Gorgon deal was pure politics, with the WA government effectively over-ruling its own environmental watchdog and giving Chevron Corporation a list of rules to follow, which is also just another step down a long road.
Reducing all that to as a few words as possible, it is now up to Woodside and Chevron to “dot the i and cross the t” on their respective projects – both of which are in the “envelope stretching” category.
Not for a second is The Slug suggesting that both projects will not, at some stage, proceed. They both have the gas, and China wants it.
But in both cases there was an awful lot of symbolism, marketing, and promotional hyperbole attached to last week’s announcements – and not much substance.
Take Browse first. This is a project which has been lurking in the background at Woodside since the early 1970s. One day, it will be developed. But right now Browse is one of several major potential developments on Woodside’s drawing board, and even though PetroChina says it wants to buy Browse gas some key questions remain to be answered, such as:
What will be the design and cost of any development, including the onshore landing site?
Can a relatively small oil company like Woodside manage multiple LNG developments at the same time?
Will the Browse partners – BHP Billiton, BP, Chevron and Shell – agree on how best to proceed?
Perhaps all will be well, and the high profit margins on LNG will wash away any concerns about capital cost and operating costs, but The Slug has a sneaking suspicion that Woodside is simply “working up” its many development options to see which one best suits its requirements – not to mention the requirements of the partners.
Gorgon, likewise, is going through a box-ticking process. It too has been through a 30-years gestation period, and it too will one day be developed.
But last week’s WA Government environmental tick of approval was just one of the many required. Like Browse there is a critical question of capital cost, and like Browse there are partners in Gorgon who appear to be pulling in different direction.
ExxonMobil is probably going to be the hardest nut to crack in the Gorgon partnership, solely on the question of capital cost.
Management at the world’s biggest oil company has made it perfectly clear that Gorgon’s likely capital cost of $20 billion puts it out of the ball park, and either a radical re-design is required, or the project must be made bigger to generate the required economies of scale.
Followers of Browse and Gorgon have heard all this before. The real question is what happened last week, and why?
The answer is that governments love set piece, good-news, shows, and with the world’s media in Sydney for the APEC conference it was a perfect opportunity to beat the Australian development drum, especially for our new best friends in China.
However, now that the APEC caravan has packed up and left town it’s down to the hard stuff, the place where questions such as onshore landing sites, financial approvals, and bickering partners dominate.
Yes, Gorgon and Browse will happen. Just don’t be rude and ask when.
