Woodside Says Carbon Plan Threatens $30 Billion LNG Project

By Angela Macdonald-Smith

Aug. 27 (Bloomberg) -- Woodside Petroleum Ltd., operator of the proposed Browse liquefied natural gas venture in Australia, said it may cut spending on the project, estimated to cost as much as $30 billion, because of a planned carbon trading system.

The draft design of the emissions trading system outlined last month by the government could have ``serious implications'' for the Browse project off Western Australia, Don Voelte, Chief Executive Officer of Perth-based Woodside, said today. ``Browse is big and this is costly,'' he said.

Under the system's proposed design, LNG producers wouldn't qualify for free emissions permits, increasing costs for Australian ventures that compete for customers against rivals in countries such as Qatar and Indonesia where there is no cost placed on carbon output. The Browse venture is worth about A$16.30 a share for Woodside, JPMorgan Chase & Co. estimated in April, more than a quarter of the current stock price.

``If the current discussion paper does not get corrected, we'll need to consider dramatically reducing the spending that we have going on this in 2009 and beyond,'' Voelte said during a conference call.

Woodside has initial accords to supply gas from Browse to PetroChina Co. and Taiwan's CPC Corp. The agreements, if completed, may each be worth as much as A$45 billion ($39 billion), Woodside has estimated. Shipments are due to start as early as 2013.

Woodside owns about 50 percent of the Browse project, which would be its biggest LNG venture. BHP Billiton Ltd., BP Plc, Chevron Corp. and Woodside's 34 percent shareholder Royal Dutch Shell Plc have stakes in the project.

`Rework System'

Melbourne-based BHP in May estimated the Browse project may cost between $20 billion and $30 billion to develop. JPMorgan in November estimated the cost at A$31 billion.

``Without some fundamental rework of the emissions trading scheme, it's very difficult for Woodside to justify substantial expenditure into Browse,'' Chief Financial Officer Mark Chatterji said during the teleconference on Woodside's first- half earnings. He declined to say how much investment may be cut.

The partners are considering two primary options for developing Browse, one calling for an onshore LNG plant in the undeveloped Kimberley region of Australia's far northwest, and the other involving piping the gas about 1,000 kilometers (622 miles) to the Burrup Peninsula, the site of existing LNG plants. A reserve option is turning gas into LNG on board ships, Woodside said. The venture may select the preferred option by the end of the year, it said.

Chevron and Shell have also said the design of Australia's proposed emissions trading plan may curtail growth in the country's LNG exports.

LNG is natural gas that has been chilled to liquid form, reducing it to one-six-hundredth of its original volume at minus 161 degrees Celsius (minus 259 Fahrenheit), for transportation by ship to destinations not connected by pipeline. On arrival, it's turned back into gas for distribution to power plants, factories and households.

To contact the reporter on this story: Angela Macdonald-Smith in Sydney at amacdonaldsm@bloomberg.net