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Pluto’s second train may be Chevron NWS sale casualty

The major’s decision to seek a buyer for its Australian liquefaction stake could be the harbinger of further realignment in feedgas projects

Chevron’s decision to put its 16.7pc stake in Australia’s North West Shelf (NWS) LNG plant up for sale has a certain logic to it. The US producer notes the facility is set to become more of an infrastructure play for current owners rather than the classic integrated gas production-liquefaction-export model.

And, in the current environment, monetising relatively low-return assets such as pipelines or tolling facilities looks like a smart bet for cash-conscious producers with divestment targets. Buyer appetite for the relatively reliable, and less price-sensitive, returns offered by infrastructure is also likely to be greater than interest in the previous focus of divestment programmes—unloved producing fields to be sold to smaller, more focused actors.

Feedgas competition

But the NWS is slightly less simple than that. The fact that a vocal potentially interested party is not an infrastructure-focused private equity firm or pension fund, but a fellow producer—Australia’s Woodside—is testament to that.

The complication comes in what new gas will flow through the NWS as the fields that provide its existing feedgas fall off plateau and space opens up in the 18.5mn t/yr facility. Non-binding agreements signed in November 2018 between Chevron, Woodside and the other NWS partners were supposed to sort that out, with the former’s Clio-Acme discoveries and the latter’s Browse field filling the gap.

But the deal was never consummated. Negotiations around Clio-Acme broke off last year, according to consultancy Wood Mackenzie. Chevron “is unlikely to be able to monetise any of its gas through the facility in the near-term”, says David Low, its senior Australasia upstream research analyst.

This is perhaps slightly surprising, given that, in the first quarter of the year, Woodside pushed FID for the larger Browse project back to late 2021. Browse delays could potentially re-open the door for Clio-Acme, albeit with other possible feedgas providers also contending. So why is Chevron prepared to give up its NWS voice when the potential for it to use its own gas looks more promising?

“[Chevron] is unlikely to be able to monetise any of its gas through the facility in the near-term" Low, Wood Mackenzie

The answer may lie in another Woodside project, which might also be motivating the Australian firm’s interest in upping its stake—and thus its say—in the NWS partnership. Its Scarborough project had been earmarked as a feedgas supplier for a second train at the Pluto LNG plant but could— with Browse pushed back and Chevron no longer within the group to push Clio-Acme’s case—instead be redirected towards the NWS.

“This option could be a more economical alternative when compared to constructing a new Pluto expansion train,” says Low. Changing feedgas horses in the project to extend NWS’ lifespan at this stage will have cost implications, he concedes.  On the other hand, “Woodside’s ownership of upstream molecules that are most likely to supply the project in future will create greater value in owning additional equity.”

Contenders ready

Woodside is not the only show in town. Low sees potential interest from private equity firms and smaller producers such as Australia’s Beach Energy, which are also jockeying to provide NWS feedgas.

Chinese, Russian and the Middle Eastern NOCs could also be interested, he suggests. And one option for these buyers might be to also take advantage of Woodside’s appetite to farm down its Scarborough stake to secure a share not only in the NWS project but also in its feedgas supply. Alternatively, if Scarborough can secure supplier status to the NWS, Woodside may decide not to sell, says Low.

Chevron’s move could also, in his view, be a precursor to the majors and large IOCs exiting non-core Australian positions. BP and Shell may also revisit their NWS stakes, particularly given the relatively high CO2 footprint of the decade-old plant. He also sees Italy’s Eni progressing a sale of its Australian upstream positions and Darwin LNG stake, as well Total following up a sell-down of a 4pc holding in Ichthys LNG with greater scrutiny of its remaining stake in the project and its share of GLNG.

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