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Political challenge for Australian FLNG project

The project, headed by Woodside and Shell, is facing difficulty amid premier's onshore push

West Australian Premier Colin Barnett is throwing all his weight up against the proposed Browse floating liquefied natural gas (FLNG) project, spearheaded by Woodside and Shell, off the state's coast.

Barnett, who has been fervently pushing an onshore LNG precinct for Browse to boost the state's economy, is opposing the Woodside-led venture's push to alter the conditions of the retention leases to process the gas offshore using FLNG, rather than at James Price Point.

He told the Australian Financial Review that he had no intention of relaxing them unless there is a new arrangement that is satisfactory to the state. A key condition is that the Browse partners build an onshore processing hub on the Kimberley coast.

At the very least he wants to see a supply base built at the controversial James Price Point site to service the project, even though there are more developed alternative sites nearby. But the developers will be loth to return to the environmentally and culturally sensitive area following intense opposition to the previously proposed LNG precinct.   

Barnett can strip the Browse venture, whose partners are BP, PetroChina, Mitsubishi and Mitsui, of the state's retention leases in December next year.

The originally proposed 12 million tonne per year (t/y) onshore scheme was shelved after soaring costs and one of the highest break-even rates in the industry made it uneconomic.

But analysts say it is unlikely to be local political opposition that derails any initial development of Browse. "An FLNG solution is sure to be phased over multiple vessels and, like with any development, you develop the most attractive resource first, which in this case lies in Federal waters," Chris Graham, an Australia-focused upstream specialist at research firm Wood Mackenzie, told Petroleum Economist.

A source close to the project said, "there is more estimated resource than is on the public record, so plenty of gas to get started with, especially with sequenced FLNG." And considering the huge volumes of associated liquids production, a "big fat" floating production storage and offloading unit, similar to 1.2m barrel floater Total is building for its Ichthys LNG scheme off northern Australia, would work well, the source added. 

The Browse basin leases lie in both state and federal waters. Two of the seven leases are controlled by the Western Australian government and hold an estimated 20% of the gas.

The remaining five leases - representing 80% of the 15 trillion cubic feet Browse resource - are controlled by the Federal government, which supports FLNG and is likely to agree to change the retention lease terms, said Graeme Bethune, chief executive of Australian-based consultancy EnergyQuest

Federal Resources Minister, Gary Gray, a former Woodside executive, understands that the industry sees FLNG as the only way forward to commercialise offshore gas, aside from expanding existing facilities or plants already under construction. In an increasingly competitive Australian and global LNG market, new onshore greenfield projects have lost their appeal. 

But Western Australia wants to get Browse gas onshore in order to meet its domestic reservation policy. The government want to force relatively high pipeline gas prices down through artificial injections into the local market, noted one analyst.

Bethune told Petroleum Economist that Barnett's opposition would probably not stall the project's development. "Getting off-takers for up to 12m tonnes and developing an FLNG project of this size would, I think, will be the biggest challenges."

Shell, which upped its stake in the venture last year and is pioneering FLNG technology with its Prelude project off Western Australia, maintains that it is the fastest, most economic and best technical solution for Browse.

Aside from cost advantages, using FLNG also cuts out difficult native title negotiations with aboriginal groups, while environmental damage is also minimised.

Apart from Prelude and Browse, at least four more FLNG liquefaction projects are proposed off Australia, including two new schemes that are on course to be sanctioned over the next two years.

Thailand's PTT Exploration and Production (PTTEP) is due to start front-end engineering and design (Feed) work for its Cash-Maple project, while GDF Suez and Santos are in the pre-Feed stage for their Bonaparte scheme.

ExxonMobil is considering what would be the world's biggest FLNG plant as a potential solution for its deep-water Scarborough field off Western Australia, while the Woodside-led Sunrise project in the Timor Sea could yet be developed using FLNG if an agreement can be reached with Timor Leste.

Some analysts also believe Shell's Crux field, rather than provide backfill for Prelude, is big enough for a standalone FLNG floater that could also form a hub for third-party gas.

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