The Australian government's December 2009 decision to impose a 120-day deadline for the Browse LNG joint venture to decide on a development option left Woodside Petroleum as a "clear winner" among its partners, according to cables from the US embassy in Canberra, published this week by WikiLeaks.
Australian resources minister Martin Ferguson cited the "use it or lose it" principle in imposing the deadline on the Browse joint venture, which is operated and held about 50% by Woodside. At the same time, the government canceled the Woodside-operated North West Shelf joint venture's retention lease over the Dixon gas field off Western Australia.
The decisions followed a well-flagged shift in policy away from Australia's previously relaxed attitude to retention lease renewals. According to figures cited by the US embassy, since 1985 only one of 58 Australian retention leases had been overturned by the government.
"The clear winner in the initial set of decisions by Ferguson is Woodside, whose reluctant JV partners in two projects will likely be forced to accept Woodside's two preferred development options," US embassy officials concluded at the time, after holding talks with various local players.
Woodside's partners in the Browse LNG project are BHP Billiton, BP, Chevron and Shell, which are also stakeholders in the operating North West Shelf development. The joint venture is planning to develop 14 Tcf of gas in the offshore Browse Basin's Torosa, Brecknock and Calliance fields.
The conditions unveiled in 2009 required that within 120 days of a lease renewal offer, the joint venture selected the planned Browse LNG precinct at James Price Point in Western Australia as the development concept, unless it could "demonstrate an alternative development concept is likely to be commercially viable at an earlier time," Woodside said at the time. The Browse joint venture was also required to spend A$1.25 billion ($1.33 billion) on front-end engineering and design, prior to making a final investment decision on the LNG project by mid-2012.
Until Ferguson's announcement, Woodside had been pushing hard for the option of piping the Browse Basin gas around 400 km (248 miles) to a 12 million mt/year foundation liquefaction plant at James Price Point. The Browse LNG precinct, in the environmentally sensitive Kimberley region, had been designated by the Western Australian state and Australian federal governments as the central processing point for all the basin's offshore gas reserves.
Woodside's Browse partners, led most vociferously by US major Chevron, had expressed a preference for the gas to be piped 1,000 km to Karratha, where it could be liquefied at the existing North West Shelf joint venture liquefaction facilities.
Despite the non-operating partners' reservations, however, all the joint venturers decided on December 24, 2009 to accept the lease renewal offers, including the government-imposed project deadlines.
According to the cable released by WikiLeaks, Australian Petroleum Production & Exploration Association Director Ranga Parimala told US embassy officials in early December that Ferguson's decision was "an 'unprecedented interference' by the government in a project, intended to force Browse partners to choose Woodside's preferred development pathway." The cable was signed by US Ambassador to Australia Jeffrey Bleich.
"In Parimala's view, the Browse JV partners would have no chance to develop a credible alternative in 120 days and would either accept the James Price Point plan or seek to walk away from the JV project," the US embassy said.
The minister's energy advisor, Tracy Winters, told US officials that the Australian government would not allow companies to sit on Australian resources over the long term, and suggested it would be "a good thing if some of the most reluctant partners pulled out of contentious and slow-developing deals, as 'there are plenty of investors ready to fill in their places'." But Winters added that companies with credible reasons for development delays could work with the government to gain time.
Chevron spokesman Mike Edmondson told the US Consul General in Perth that Ferguson's "unprecedented and concerning" decisions reflected his "long-standing views on use it or lose it provisions and Woodside's lobbying to put pressure on its partners."
BHP Billiton Vice President for Government Relations Bernie Delaney was also cited in the cable. Delaney had previously told US officials that his company was "strongly opposed to the changes in retention leases, which are likely to push companies such as Chevron and BHP to use existing Woodside infrastructure in the North West Shelf, and to develop the new James Price Point complex."
Delaney said BHP Billiton and several of its North West Shelf partners were "very frustrated with Woodside's operating style and would much prefer to build their own processing facilities," which would leave Woodside "sitting on very expensive processing assets without a long-term supply of gas."
Woodside spokeswoman Laura Hammer Thursday declined to respond to the contents of the leaked cable. "We can't comment on the speculation contained in this document, other than to say the Browse joint venture partners have all agreed to fund the current front-end engineering and design activities for the Browse LNG development to be in a position for a final investment decision in mid-2012," she said in an email.
Woodside has not yet released any estimate of the likely cost of the Browse LNG project, but it is widely expected to be A$30 billion or more. If the go-ahead is given as scheduled next year, first LNG would be expected by 2017.
Meanwhile, plans for the development of the Browse LNG project in the pristine and remote Kimberley region continue to attract protest from environmental lobby groups.
Australian environment minister Tony Burke Wednesday placed more than 19 million hectares of the west Kimberley on Australia's National Heritage List. The heritage area excludes the LNG plant site, but includes an intertidal area within the precinct area, south of James Price Point, in order to protect ancient human and dinosaur footprints.
Woodside expressed surprise at the inclusion, but Hammer said the company accepted the minister's decision. "We believe that Woodside's proposed Browse LNG development can successfully co-exist with the heritage values of the Dampier Peninsula," she added.
