Rystad analysts Olga Kerimova and Theodora Batoudaki told Energy News overnight that Browse FLNG is still the front-runner to lead any hopes of a "second LNG investment cycle" for Australia.
However, when pressed on the legitimacy of Browse's economics in the current oil price environment, they expressed grave concerns.
"While feasible, in terms of project economics there is high uncertainty around the sanctioning of Browse," the analysts said.
"For the first phase we estimate the breakeven to be close to $US10 per thousand cubic feet, which is higher than the current East Asia spot LNG price."
That said, the analysts added that Rystad's current view according to its UCube database was that, all going well, Browse would be approved in late 2016 and would incur development costs from 2016 onwards. This is based on the latest communication from Woodside and has so far not been revised.
"A new investment cycle is expected to start post 2017," the analysts said, though that was a big ‘if' Browse ever actually went ahead.
"The Browse project is leading the second investment cycle, as the investments in this project are estimated to grow from $US1 billion in 2017 to $4 billion in 2020.
"As of August 2015, Woodside confirms that FID [final investment decision] of Browse is targeted to occur in the second half of 2016. However, in general, the development of the oil prices can affect the timing of sanctioning of new LNG projects. The operating costs are increasing, in line with the ramp-up in production from 2016, and are expected to double by 2020."
While Woodside CEO Peter Coleman said in May that Browse's rate of return would be toward the lower end of Woodside's targeted 12-15% for new ventures, he told analysts in August that the stark reality of today's price environment meant the goal was simply to just cover costs.
"That means it needs to breakeven at the sorts of low oil prices that we're seeing in the market place today - and that's not a 12% return, that's breakeven," he said.
"So the investment decision will be made with two considerations: what's our expectation of long-term oil pricing, and does that meet our investment criteria; then equally, in a world where oil prices never recover, can we assure ourselves that in fact the investment will breakeven at those sorts of prices.
"That's a pretty harsh test."
He also said in that conference call that he did not see much price support for LNG spot prices over the next 18 months.
However, both Shell and Chevron Corporation remain bullish about the fundamentals of the LNG market, with the Anglo-Dutch supermajor revealing this week its belief that demand would grow at 5% a year to 2030, just below the 8% annual growth that has occurred since 2000.
Shell CEO Ben van Beurden named Browse this week as one of the projects that were among "some of the big things coming our way" that offered further growth for Shell as it separated its highly lucrative Integrated Gas unit out with a new head as it prepares for its merger with BG Group.
He also added, however, that Shell would have to "optimise" cost and timing.
Shell's chief financial officer Simon Henry told analysts at a management day in London on Tuesday that "the fundamentals of this [LNG] market look as robust now as in the past to us".
"Shell is investing to develop new LNG demand, through offtake contracts and new LNG regasification projects," Henry added.
Shell has a 27% stake in Browse, with operator Woodside (30.6%), BP (17.33%), Japan Australia LNG (14.4%) and PetroChina (10.67%).
The Browse joint venturers chose the use of floating LNG technology to develop the remote offshore resources in September 2013, and agreed to enter front-end engineering and design in June.
The joint venturers agreed to an Equity Alignment Deed as part of entry into FEED phase, which comprises a series of exchanges of equity interests between the participants, establishing a new joint operating agreement and a single aligned interest for each of the participants across the combined Browse titles and other assets.
The timing of commercialisation and the sequencing of FLNG deployment is still being considered.
Staggering development of the Brecknock, Calliance and Torosa fields would be the most palatable option for investors in the current oil price environment.
