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Australian onshore LNG projects threatened by high construction costs

25 November 2013

A plan by Arrow Energy to build an A$20bn LNG plant on Curtis Island in Queensland is now in doubt. Arrow’s shareholders, Shell and PetroChina, are looking at the possibility of bringing in other partners to contain the costs of the project. Shell apparently considers the project to be underperforming compared to other investment opportunities due to Australia’s high development costs. 

FPSOs are increasingly seen as the future for Australian LNG
FPSOs are increasingly seen as the future for Australian LNG

A final investment decision was expected by the end of this year, however this could now be delayed.

The move comes as the International Energy Agency downgraded long-term Australian LNG export forecasts because of the high costs associated with projects under construction. About seven million tonnes of LNG a year from the IEA's 2035 estimate was downgraded.

Three other plants are being built on Curtis Island by Santos, BG Group and Origin Energy/ConocoPhillips, costing a total of A$70 billion.

Chevron’s Gorgon LNG project in Western Australia went over budget by  $9 billion, pushing costs up to $52 billion. And earlier this year, Woodside scrapped its $45 billion planned development at James Price Point in the north-west of the country in favour of using a floating LNG plant.

Shell and PetroChina have spent about $5bn buying coal seam gas permits in Queensland's Surat and Bowen Basins through the acquisition of both Arrow Energy and Bow Energy.

Earlier this year the LNG industry warned $150 billion worth of investment in Australia could be lost if the high cost of building major projects is not fixed within eighteen months.

"While the industry, partners and governments have together delivered more than $160 billion in committed LNG investment in Australia, another $100 billion- plus in projects hangs in the balance," Chevron Australia's managing director Roy Krzywosinski said.

Floating LNG technology has been touted as the saviour of Australia’s LNG industry, seen by the sector as a more attractive option than onshore plants. Shell’s $12 billion Prelude floating LNG structure is expected to start production in 2016.

BHP and ExxonMobil have been granted Federal approval for a massive floating LNG plant off the West Australian coast near Exmouth, a project worth $10 billion. At the same time, Santos and GDF Suez are also looking into the development of a FLNG vessel for the Bonaparte Basin.

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