Weak oil prices have forced energy giant Woodside Petroleum to shelve its key $50 billion Browse liquefied natural gas (LNG) project.
The oil and gas company and its joint venture partners were scheduled to make a final investment decision on the offshore floating LNG project in the second half of the year.
But chief executive Peter Coleman said Woodside and its partners had decided not to proceed for now due to the challenging economic and market environment.
“We will use the additional time to pursue further capital efficiencies for Browse,” Mr Coleman said.
The announcement is a major blow to the struggling West Australian resources sector which continues to haemorrhage jobs.
Still, Mr Coleman said Woodside was committed to the “earliest commercial development” of the Browse resources and to FLNG in north Western Australia.
Browse remained central to Woodside’s growth portfolio and the decision was consistent with the company’s requirement for a commercially robust development, Mr Coleman said.
Investment bank UBS estimates three floating LNG vessels for Browse will cost around $US40 billion, but cost deflation could see that estimate lowered to $US35 billion.
Cost reductions and an oil price recovery would be key to the project going ahead, UBS analyst Nik Burns said.
“Investors will be asking: Woodside has a solid production platform, but where is future growth coming from?” he said.
Fat Prophets analyst David Lennox said Woodside would most probably look to acquire individual assets, rather than entire companies, as it searched for growth.
“They’ve already tried once with Oil Search and got their fingers burned,” Mr Lennox said.
“They’ll look for specific assets rather than perhaps trying to buy bid-down companies.”
Mr Lennox said he wouldn’t expect to see a multi-billion dollar project like Browse built as gas prices remained weak.
“When the price gets better they’ll have another look at it,” he said.
Woodside did not say whether the Browse decision would lead to job losses.
West Australian Premier Colin Barnett said hopes of a recovery in oil and gas jobs had been dampened.
“It’s disappointing,” Mr Barnett said.
Mr Barnett said it would be very difficult for Woodside to commit to “north of $50 billion” to develop the project in the current price environment.
Brent Crude oil is trading around $US41.50 a barrel, but despite a recent uptick in price analysts say a significant recovery is some way off.
Woodside shelved its plans for a $45 billion onshore gas plant development near Broome almost three years ago in favour of pursuing a floating LNG option which would take six to seven years to build.
The company renewed its Browse retention leases last year, giving the partners until mid-2020 to begin developing the Browse project and locking in long-term supply contracts.
Browse was expected to be the last large-scale oil and gas project to be given the green light in Australia, with seven major LNG projects expected to be operating this year.
Woodside holds a 30 per cent stake in Browse, while joint venture partners Shell, BP, PetroChina and a venture between Mitsui and Mitsubishi have the remaining share.
Woodside shares were 33.5 cents, or 1.22 per cent, lower at $27.03 at 1530 AEDT.