All the LNG projects currently underway in Australia are facing increasing development risk, budget blowouts and possible deferrals due to the boom in activity across the domestic resources and infrastructure sectors, Fitch Ratings said in a report this week.
Fitch's assessment comes in the wake of Woodside Petroleum's June 17 unveiling of a six-month startup delay and A$900 million ($952 million) cost over-run at its Pluto LNG project in Western Australia. Woodside has been forced to postpone Pluto's first LNG shipment from September 2011 to March 2012 and raise the overal budget for the project from A$14 billion to A$14.9 billion, including the cost of arrangements with customers affected by the delay.
"There is a large number of LNG and other infrastructure projects in Australia presently under development," Sajal Kishore, director in Fitch's Energy & Utilities team, said in a statement. "However, these projects face increasing execution risks from upward cost pressures and schedule delays."
The LNG projects are competing with other major Australian resources and infrastructure developments for skills, materials and equipment, as well as other global suppliers to meet Asian gas demand, according to Fitch.
"Managing this significant growth in planned LNG production capacity within budget and on schedule continues to be a major challenge for the sector," the ratings agency said.
Pluto is now set to cost nearly 25% more than the A$12 billion approved when it was sanctioned in July 2007, and is running 15 months behind its original expected startup at the end of 2010.
But Woodside's woes are not isolated. "Fitch also notes similar announcements of delays and cost blowouts by other sponsors of Australian resources and infrastructure projects over the last two years," the company said.
"Fitch expects funding to become more difficult as projects continue to face cost increases and timetable over-runs," Kishore added. "This may result in a deferral or cancellation of some proposed projects."
Fitch said it believed there would be strong growth in demand for Australian LNG exports in the medium term, which has been reflected in the increase in the number of new projects approved, particularly in the Queensland coalseam gas sector. Over the longer term, the agency also believes that Australian LNG exports will benefit from increased demand from Japanese gas-fired power generators following the loss of some nuclear capacity after the March 11 earthquake.
Australia is already home to the 16.3 million mt/year North West Shelf and 3.6 million mt/year Darwin LNG production facilities. New projects are already underway led by Chevron at Gorgon (15 million mt/year) in Western Australia; BG Group (8.5 million mt/year) and Santos (7.8 million mt/year) on Curtis Island in Queensland; and Shell at the Prelude (3.6 million mt/year) floating facility in the Timor Sea.
Another raft of developments are expected approach or reach final investment decisions over coming months. These include developments led by Chevron at Wheatstone (8.9 million mt/year) and Woodside at Browse (12 million mt/year) and Pluto 2 (4.3 million mt/year) in Western Australia; Inpex Corporation at Ichthys (8.4 million mt/year) in the Northern Territory; and Australia Pacific LNG (9 million mt/year) and Arrow Energy (8 million mt/year) in Queensland.
