Woodside deal triggers worries for plant next door

Woodside Petroleum’s go-ahead for the $16.5 billion Scarborough LNG project in Western Australia has improved sentiment around the economics of the investment but raises huge questions for the North West Shelf venture which is running out of gas.

The oil and gas producer revealed significantly improved returns figures for its investment in Scarborough LNG when it announced the final investment decision late Monday thanks to the deal a week earlier to sell part of the Pluto LNG expansion infrastructure to Global Infrastructure Partners.

If Woodside’s revised estimate of a payback period of six years can be reached it would be “decades shorter than the payback period for the projects delivered in Australia’s last LNG wave,” said consultancy Wood Mackenzie.

Credit Suisse noted Woodside’s guide to 13.5 per cent returns on the investment at $US65 a barrel oil prices and a breakeven for delivery of LNG to North Asia of $US5.80 per million British thermal units is improved from its earlier estimate of 12 per cent returns and $US6.80/MMBTU delivered cost. On forecast numbers and if other fields are brought into the venture, the economics could further improve, the firm said.

But the now-final decision to process gas from the Scarborough offshore field at an expansion of Woodside’s Pluto LNG plant near Karratha has sharpened the problem of the declining supplies of gas for the North West Shelf LNG plant next door. Several analysts and investors had questioned whether Scarborough gas should be instead directed to the North West Shelf LNG plant instead, an option now taken off the table.

“With Scarborough confirmed to Pluto, the forward plan for the NWS now needs urgent clarification,” Wood Mackenzie senior analyst Daniel Toleman said. “The once-mighty NW Shelf is maturing and needs new resource to keep its five trains full.”

The NW Shelf venture, which is also run by Woodside on behalf of six partners, has struck deals to process third-party gas, including from the Waitsia field and Pluto. But those only provide a stopgap, with spare capacity at the venture’s Karratha plant seen increasing to more than 8 million tonnes a year by 2030, Mr Toleman said.

Consultancy EnergyQuest has also highlighted the problem of declining gas at North West Shelf venture, with CEO Graeme Bethune describing the Pluto-2 decision for Scarborough gas as “sub-optimal”.