Woodside calls temporary halt to California offshore gas plans

Weekend Australian 

Saturday 17/1/2009 Page: 25

Woodside Petroleum has delayed its innovative attempt to deliver Australian LNG to the US, citing "changed energy market conditions". The project involved mooring an LNG tanker off the coast of Los Angeles and connecting to an undersea pipeline to deliver the gas to California's domestic gas network.

Woodside Petroleum Natural Gas president Steve Larson said yesterday that conditions were not right for the proposed development. "We must acknowledge the impact of the current market, and have notified the regulatory agencies we are withdrawing our application for the time being," Mr Larson said. "While the permit process in California and Los Angeles is challenging, we were confident that, with the overall environmental and safety attributes of our design, our application would ultimately succeed"

Woodside Petroleum's move to suspend OceanWay marks one of the first blows the global financial crisis has laid on a major Australia petroleum player, in contrast to the resources sector, which has been in a spin since last year under the pressure of sinking commodities prices and shrinking credit markets. Woodside Petroleum, which declined to reveal the impact of the deferral on its accounts, has been pursuing OceanWay since 2005 and was slowly moving the plan through regulatory approvals under intense scrutiny from Californian environmental activists.

Domestic gas production in the US has increased, in contrast with conditions when Woodside Petroleum initiated the OceanWay project. Mr Larson said Woodside Petroleum saw a future for OceanWay despite the suspension, particularly as Californian Governor Arnold Schwarzenegger continued his campaign to reduce carbon emissions. "As the state's climate change policies continue to evolve, they will only strengthen the role for natural gas as part of California's clean air solution," he said. "We still believe in the long- term value of liquefied natural gas as a source of clean, reliable and secure energy for Los Angeles"

UBS senior energy analyst Gordon Ramsay said the suspension of OceanWay was unsurprising. "It is a project that has gone quiet lately and has been deferred, not cancelled indefinitely," Mr Ramsay said. "The US gas price is particularly weak," he said. The deferral was based on the conclusion that the market was not there at the moment. The postponement came as the Australian arm of Japanese gas firm Inpex - in partnership with French major Total- announced it had awarded the contract for front end engineering and design (FEED) to a joint venture of engineering and design firms .JGC Corp, KBR and Chiyoda Corp.

The FEED milestone puts an end to hopes - particularly from the West Australian Government - that Inpex would review its decision to abandon WA as the processing site for gas from its Ichthys field in favour of Darwin's Blaydin Point. lnpex president Naoki Kuroda reaffirmed that the project was moving ahead despite volatile market conditions. " Despite the current global financial environment, Inpex remains firmly committed to advancing the Ichthys project," Mr Kuroda said.

Inpex expects the $US20 billion project, scheduled to begin loading LNG in late 2014 or early 2015, to produce 8 million tonnes of LNG a year and 1.6 million tonnes of LPG a year as well as 100,000 barrels of condensate a day. Darwin's Blaydin Point site can support two initial LNG trains, with the capacity for additional trains to accommodate future expansion. Woodside Petroleum shares fell 52c to close at $33.53 yesterday.