Woodside Says Australian Carbon Trade Plan May Double LNG Costs

By Angela Macdonald-Smith

Sept. 16 (Bloomberg) -- Woodside Petroleum Ltd., operator of Australia's North West Shelf liquefied natural gas venture, said that the introduction of carbon trading may more than double operating costs for a typical project.

A carbon price of A$20 ($15.97) to A$40 a metric ton of carbon emissions in 2010, escalating over time, would also cut after-tax cash flows on a two-unit, 10 million tons-a-year LNG project by as much as 29 percent, the Perth-based company said in a submission on the government's proposed carbon trading system published today on its Web site.

Under the proposed trading system, due to start in 2010, LNG producers wouldn't qualify for any free emissions permits, increasing costs for ventures that compete for customers against rivals in countries such as Qatar and Indonesia where there are no penalties for producing carbon. Woodside is urging the government to exempt LNG producers from the system, or grant them free permits, until overseas competitors face similar costs.

``Despite some suggestions to the contrary, LNG projects cannot absorb the expected cost of emissions permits, nor deal with the inherent uncertainty,'' Woodside said in the submission. The trading plan threatens ``the loss of industry investment for no environmental gain,'' it said.

Woodside, 34 percent owned by Royal Dutch Shell Plc, is a member of the Australian Petroleum Production & Exploration Association, which yesterday called on the government to create a category of industries called Clean Global Contributors that qualify for free permits because their output contributes to the reduction of emissions by displacing dirtier fuels such as coal.

Woodside, operator of the proposed Browse LNG venture off northwest Australia, said last month it may cut spending on the project, estimated to cost as much as $30 billion, because of the planned carbon trading system.

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