Today’s West Australian reports that Woodside is believed to have given the State Government an undertaking that it examine whether building a domestic gas plant as part of the project is commercially viable.
But unless domestic gas prices increase to levels close to the international LNG price, it is hard to see how such a plant can be cost-effective.
The newspaper report said it was understood that Woodside will be given at least five years to determine whether supplying gas from the Pluto field for the WA market is viable. Its decision will be subject to an assessment by an independent arbitrator.
Under Premier Alan Carpenter’s gas reservations policy, producers can meet local supply requirements from other fields or defer domestic obligations until such time as supplying the local market becomes viable.
The Carpenter Government has said it would apply gas reservations flexibly to avoid crippling LNG projects.
If Pluto has indeed been approved without gas reservations, it is difficult to believe that the policy could be applied to other proposed WA LNG projects.
The BHP Billiton-operated Pilbara LNG project is already seen by joint venture partner ExxonMobil as being only marginally viable. Meanwhile, Woodside’s proposed Browse development and Inpex’s Icthys development are planning developments on or adjacent to islands or reefs, and would only need to move their plants past the low tide mark to be in federal waters where they could evade state gas reservations.
But Pluto faces other problems. Woodside’s North West Shelf partners have reportedly vetoed it building a sixth production train at the NWS project’s Burrup processing site, according to the Australian. Woodside must now build from scratch on a greenfields site, which will push up costs considerably. This is likely to be a bigger short-to-medium term impediment than gas reservations.
It also remains to be seen whether the Australian labour market can supply enough manpower to build Gorgon, Pluto and any further NWS and Darwin LNG expansions concurrently. If any of these projects fall behind, they would also find themselves competing with Icthys, Browse LNG and Pilbara LNG for labour and commodities.
Woodside pushes ahead with LNG projects
In its quarterly report released today, Woodside said preliminary analysis indicated last month’s Xena gas discovery, which is being considered for tie-back to Pluto, could contain about 400 billion cubic feet of contingent gas.
Woodside also reported that LNG production from the North West Shelf during the quarter had dropped to about 31,598 tonnes per day – down from 32,708tpd in the previous quarter.
The company blamed the slump on the month-long shutdown of the fourth LNG train due to a compressor fault.
Woodside said construction of the fifth train was now 47% complete, with all major contracts now awarded. The project is still on schedule for completion in mid-2008, with first LNG cargoes flagged for the fourth quarter of that year.
Also at the NWS, Woodside expects that drilling will start this month at the Perseus-over-Goodwyn project, while ongoing engineering, procurement and fabrication activities mean the project anticipated for start-up in the second quarter of next year.
In addition, Woodside said the Goodwyn low-pressure train project is nearing completion and was on schedule for start-up this quarter.
Also running on time is the Angel project, according to Woodside. Engineering, procurement and contracting activities are progressing on schedule, as well as work on the jacket fabrication in China and topsides fabrication in Malaysia. The subsea trees, wellheads and flow bases have successfully completed factory acceptance testing in Singapore, it said.
At Browse, Woodside said it was continuing development studies for the offshore concept at Scott Reef, where it hopes to start drilling the first of three appraisal wells this current quarter.
