Douglas-Westwood: 'Australian LNG - A Lost Cause?'

Douglas-Westwood, a UK-headquartered provider of energy business strategy, research and commercial due-diligence services, commented on "Australian LNG - A Lost Cause?" in its latest edition of DW Monday.

DW Monday: "Australian LNG - A Lost Cause?"

Recent news headlines on the liquefied natural gas (LNG) sector in Australia seem to be centered around its unsustainable rising costs. Woodside Petroleum had to ditch plans last year for its Browse LNG plant, which had gone way over budget at an estimated cost of $80 billion. In the interest of continuing the development, Woodside and its partners have now turned to floating LNG (FLNG) vessels as a practicable alternative. More recently, Santos and GDF Suez have also scrapped plans to build gas plants off the Northern Territory Coast of Australia. Projects that have gone ahead have seen significantly increased costs. At approximately 80 percent completion, the Gorgon LNG project is now estimated to cost $54 billion – a sharp contrast to the original budget of $37 billion (46 percent over-budget).

In the meantime, despite Australia’s LNG cost challenges, the United States is moving forward with the possibility of bringing onstream an LNG plant that would cost between $2.2 billion and $3.7 billion. Magnolia LNG in Louisiana is expected to come onstream in 2018, potentially the nation’s first LNG export plant with the capability of processing 8 million metric tons per annum. This shows the feasibility of constructing similar infrastructure at that price, but outside Australia!

Australia’s Woodside is, at the same time, looking to make a move overseas in search of better economics. The country stands to lose $97 billion of potential LNG projects to East Africa and North America unless radical cost reduction is applied. Furthermore, Russia and China’s $400 billion gas deal could possibly undermine several of Australia’s gas projects.

Australia has actively been finding ways of implementing reforms in an attempt to reduce operating costs. Even with the recent Russia-China deal, pipeline gas from Russia will only be supporting 6 percent of China’s gas demand by 2030. China cannot avoid seeking diversity in its energy sources. New technologies and innovations, such as the much-anticipated FLNG vessels, will present themselves as potential solutions. With these cost-reducing opportunities/ challenges, it proves to be interesting how the scenario will play out for Australia, new LNG producer entrants elsewhere and the potential for new gas pipeline suppliers to China.


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Ken | Aug. 14, 2014
Douglas certainly gave a serve to Australian Engineers, could he be more specific in where the cost blowouts occured, because Im still not understanding why Australia gets the blame for high costs for Gorgon. The front end work for Gorgon was done in London. All the Process Engineering and Procurement was done in London & Asia. All the Process Module Fabrication was done in Asia. So Australia would seem to be in the clear here, so far. Perth had a small bit of Non Process Engineering, a very small % in Project dollar terms. Perth is finishing of the detail design Engineering work handed over from London, this should not be costed against Perth ! Site Prep Hook-up and Commissioning is progressing on Barrow Island, so we do not know a final dollar figure here yet. These Billion of dollars blow outs, have been going on for a long while now, some say Chevron should shoulder some of the blame ! Douglas can you inform me with more specific detail. Appreciate a quick response. Regards

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