Woodside defers FIDs on Australian LNG projects on economy, COVID-19

Highlights

Scarborough, Pluto train 2 and Browse projects delayed

Global NOC-backed LNG projects at a competitive advantage

Woodside targets China for spot LNG as pandemic spreads in West

Sydney —
Australian’s biggest LNG exporter Woodside is deferring targeted final investment decisions for its Scarborough, Pluto Train 2 and Browse projects in response to the uncertain global investment environment caused by the COVID-19 pandemic and the oversupply of crude oil and LNG.

The move follows recent announcement by fellow Australia-listed Santos and Oil Search that they would reduce spending and defer projects, amid growing economic and energy demand concerns.

Woodside has pushed back the expected FIDs for Scarborough and Pluto Train 2 to 2021. Previously, it was expected to happen this year.

The gas from Scarborough is planned to be exported via an expanded Pluto LNG facility. Woodside’s 90%-owned Pluto LNG currently has a 4.9 million mt/year nameplate capacity, while a second train is targeted to be 5 million mt/year.

The producer did not give a timeframe for FID on Browse, which was previously expected next year. The Browse development concept utilizes two FPSO facilities and is designed to deliver 12 million mt/year of LNG/LPG and domestic gas through an approximately 915 km trunkline to existing North West Shelf infrastructure.

“Woodside enters this period of significant uncertainty with one of the stronger balance sheets in our industry,” Woodside’s CEO Peter Coleman said.

“The development of the Scarborough and Browse gas resources through Woodside’s proposed Burrup Hub remains among the world’s most cost-competitive LNG investment opportunities,” he added.

COST CYCLE OPPORTUNITY FOR QATAR

In this uncertain investment climate, global LNG projects that are backed by national oil companies such as the Qatar LNG expansion are more likely to go ahead than others, Coleman told an investor briefing Friday.

“The challenge will be the pace because, of course, they have a lot of IOCs [international oil companies] as partners there, so I think they will be dragged along by whatever decisions that Qataris choose to take,” he said. “[Qatar] may see this as an opportunity to be able to build at a lowkey point in the cost cycle,” he said.

He added that it is unclear what incentive Russia will offer to projects based there.

“Projects that have not been sanctioned at this point other than those that are driven by national oil companies, I think, will be challenged,” he said.

MORE SPOT LNG TO CHINA ON ‘RAPID’ RECOVERY

Woodside noted that its 2020 production guidance is unchanged at 97-103 MMboe, while its trading team has recently begun placing some spot volumes back into China as industrial output and demand restarts.

“The pollution readings are going up, which is an indication that manufacturing business is starting to start up again. I think you will see demand come back in China fairly rapidly,” Coleman said.

“The biggest question for us now is what is happening in Europe and the US,” he added.

The US has overtaken China as having the most confirmed cases of COVID-19. As of Friday, the US’ cases stood at 85,505, more than China’s 81,782. Cases in Italy are only marginally behind China at 80,589, according to Johns Hopkins University.

EXPENDITURE CUTS, NWS MAINTENANCE DEFERRED

Woodside said it aims to cut total expenditure in 2020 by approximately 50% to $2.4 billion and cancel or defer non-essential activities. This includes an approximately $100 million reduction in operating expenditure and an approximately 60% cut in investment expenditure to $1.7 billion–$1.9 billion.

As part of this measure, it has deferred planned maintenance at North West Shelf train 3 to September 2020 and train 4 to August 2021.

It is also deferring most proposed exploration activities, and reducing overall exploration expenditure by approximately 50% to $75 million, the company said.