Woodside’s North West Shelf gas exports in doubt

Australia’s biggest LNG plant may be forced to cut gas exports unless new offshore supplies can be secured.

The $34bn North West Shelf plant in Western Australia, operated by Woodside Petroleum, faces more than 40 per cent, or 7 million tonnes, of its 16.9 million tonne annual capacity being unused by 2027.

Australia’s biggest LNG plant may be forced to cut gas exports unless new offshore supplies can be secured as the facility moves to a new tolling structure reliant on third-party resources, consultancy Wood Mackenzie has warned.

The $34bn North West Shelf plant in Western Australia, operated by Woodside Petroleum, faces more than 40 per cent, or 7 million tonnes, of its 16.9 million tonne annual capacity being unused by 2027 unless supplies from big offshore fields are found to fill the gap.

Tensions have also been stoked after a move by the WA government to ban the use of onshore domestic gas for export in order to safeguard local output, cutting a potential “top-up” source for the export plant. “A large backfill option is needed soon, otherwise the North West Shelf joint venture will consider shutting down trains,” WoodMac senior analyst Daniel Toleman said. “Without backfill, we forecast 7 million tonnes equating to 40 per cent of nominal capacity will be available by 2027. Decisions on how to fill this gap need to be made now.”

The terminal is facing the depletion of its gas reserves in the next few years, forcing the facility to move to a new tolling model where it will process gas from third parties for the first time.

Several short-term solutions have been struck.

Woodside’s own offshore Pluto field will send gas through the plant from 2022 under a non-binding deal agreed to in August, while more controversially the Kerry Stokes-backed Beach Energy received an exception from the export ban and will be able to process gas from its onshore Waitsia field from 2023.

The WA government updated its gas policy in mid-August, stipulating local WA gas cannot be exported to the eastern states or overseas, with Premier Mark McGowan wary of repeating the east coast’s mistakes where domestic gas prices soared after Queensland LNG exports sucked supplies out of the local market.

Woodside had planned to process gas from its remote Scarborough field to prop up an expansion of its Pluto LNG project with gas from the long-delayed Browse field to fill the NW Shelf plant.

However, this year’s oil price crash has forced Woodside to delay both Scarborough and Browse, with some investors now making the case for Scarborough gas to help fill NW Shelf given the looming available capacity.

Still, Woodside has noted longstanding issues among NW Shelf partners to get a separate gas processing deal for Browse and does not see it as an easy fix to suggest the same solution for Scarborough.

WoodMac said both fields could ultimately supply NW Shelf under one scenario.

“We have reviewed the economics of Scarborough to Pluto and the NW Shelf. A development to the NW Shelf is more attractive due to capital savings. However, this option would be on a later timeline and has additional commercial complexity,” Mr Toleman said.

“Due to Browse being delayed, one possible outcome is both Browse and Scarborough supply the NW Shelf.

“This could be facilitated by using capacity from Pluto train 1 and either throttling back production or adjusting the ramp-up profile of the backfill projects,” he added.

The plant, located 1260km north of Perth, includes five LNG export processing trains and two domestic gas facilities. Woodside runs the facility in a joint venture with BHP, BP, Chevron, Shell and Mitsubishi with Mitsui. The imminent move to infrastructure-style returns under the tolling mechanism has sparked a shake-up in North West Shelf ownership, with US giant Chevron putting its one-sixth stake up for sale and BHP to consider offloading its share once the tolling model has been established.

Other partners may follow Chevron out the door, according to WoodMac.

“It’s very possible the European majors could follow Chevron out the door as they look to reduce their carbon footprints. A new era of opportunity beckons for the NWS and backfill projects,” Mr Toleman said.

Woodside is seen as the most likely buyer of Chevron’s stake, with a sales flyer now out in the market in the expectation a deal may be concluded in early to mid 2021.