Woodside, Chevron May Delay LNG Projects on Turmoil

By Angela Macdonald-Smith

Oct. 13 (Bloomberg) -- Woodside Petroleum Ltd., Chevron Corp. and other liquefied natural gas producers may delay committing to new projects because of lower crude oil prices and the difficulty in raising finance, analysts said.

The most-expensive projects, such as Woodside's proposed Browse LNG and Chevron's Gorgon off northwest Australia may be worst affected, said Di Brookman, an oil and gas analyst at Citigroup Inc. in Sydney. Most projects not already sanctioned will probably ``slide in time,'' said Stuart Baker, an energy analyst at Morgan Stanley. Chevron's ventures in Australia are making ``good progress,'' a spokeswoman said.

Australia is expected to show the biggest growth in LNG production capacity through 2022, according to the International Energy Agency. Inpex Holdings Inc., BG Group Plc, ConocoPhillips and Petroliam Nasional Bhd are among other comapnies proposing to build more than $60 billion of LNG plants in the country.

``All these big LNG projects, they all need external financing, debt and equity, and that's going to be tough,'' said Melbourne-based Baker. ``Historically the industry had just assumed oil prices would hang in and the money would flood in. Well the game has just changed in the past two weeks.''

Perth-based Woodside, 34 percent-owned by Royal Dutch Shell Plc, said last month that the added costs of carbon trading may threaten the Browse project, estimated to cost as much as $30 billion. Chief Executive Don Voelte said last month he was ``planning on a different world than what we've seen in the past 12 months'' because of the financial crisis.

Gorgon Delay

The company can't comment further, said Roger Martin, a spokesman.

Chevron's proposed Gorgon LNG project has already been delayed several years. It was first put on hold in 1998 when the Asian economic crisis hit. More recently, the venture, which includes Shell and Exxon Mobil Corp., scrapped a timeline for approving and building the plant as they seek to tackle a surge in construction costs.

Chevron remains committed to Gorgon and the venture has ``recently secured an additional A$1 billion in vital funding,'' spokeswoman Nicole Hodgson said in an e-mailed response to questions. ``The Chevron-operated Gorgon and Wheatstone projects continue to make good progress, with both projects ramping up staff and contractor positions as we speak,'' she said.

The Gorgon project may cost A$20 billion, the Western Australian government has said. Australia will account for 16 percent of global gains in LNG output capacity through 2022, the Paris-based IEA estimates.

Funding Costs

Australian funding costs eased today after Prime Minister Kevin Rudd guaranteed bank deposits and European leaders promised to shore up lenders, seeking to unlock frozen credit markets.

The premium charged to exchange floating- for fixed-rate interest payments in Australia for a period of one year shrank to 99 basis points, the biggest decline since 2002. Rudd said yesterday the government will guarantee all deposits with institutions for the next three years and all ``term wholesale funding'' by Australian banks operating in international credit markets.

LNG is natural gas chilled to liquid form, reducing it to one-six-hundredth of its original volume, for transportation by tanker to destinations not connected by pipeline. Prices in long-term contracts may be linked to the price of crude oil, which has fallen more than 45 percent since reaching a record $147.27 a barrel on July 11. Chevron owns 100 percent of the separate Wheatstone venture.

PNG `Looks Good'

Exxon Mobil's proposed $11 billion LNG project in Papua New Guinea, due to start shipments in late 2013 or 2014, is one of the best placed, both Brookman and Baker said. The economics of the venture are boosted by a ``very attractive fiscal regime'' and the volume of condensates, a type of light oil contained in the gas, which will boost profitability, Brookman said.

``I think PNG still looks good because you've got Exxon there,'' Baker said. ``After that it gets hard to see where the money's going to come from. You've got the world banking system on the verges of collapse. No-one's going to rush out and lend $10 billion for a long-dated LNG project.''

Onshore LNG projects proposed on Australia's east coast may be better placed to weather the effects of lower LNG sales prices and tighter credit markets, Brookman said.

East Coast Projects

Projects such as those proposed by Petronas and Santos Ltd., ConocoPhillips and Origin Energy Ltd., and BG and Queensland Gas Co. have higher rates of return than some of the ventures in Western Australia that require the development of distant offshore fields and lengthy pipelines and have to pay higher royalties, she said. Queensland Gas gained as much 28 percent in Sydney trading today, after slumping 38 percent last week.

Still, even the east coast projects may be re-examined, Morgan Stanley's Baker said.

Any delays in project approvals will push out a forecast shortage of LNG supply beyond a current estimate of 2015, Brookman said.

``If we have any slippage in a lot of the projects that are earmarked at the moment then we'll continue to have that shortage for longer,'' she said.

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