Australian LNG Deals Impacted by Price Drop

Scarborough floating LNG project seen at risk; planned LNG projects hurt by near-50 pct fall in Asia LNG prices.

Planned Australian liquefied natural gas (LNG) export projects, including the costly Scarborough floating vessel, are at risk as sinking energy prices make investments unviable, analysts said.

A nearly 50 percent slump in Asian LNG prices <LNG-AS> this year has pressured any project without a Final Investment Decision (FID). Just last week, Woodside Petroleum Ltd delayed the FID for its $40 billion Browse floating project with Royal Dutch Shell (RYDAF) and BP.

The next cab off that rank could be ExxonMobil and BHP Billiton (BHPLF)'s $10 billion Scarborough project.

Scarborough will be "commercially challenging" to justify given a raft of competing LNG projects, said Noel Tomnay, global gas and LNG research head at Wood Mackenzie.

"China's growing pains as well as slugs of LNG coming into the market: that's a fairly wicked combination. It would take a very brave soul to ignore the prevailing market."

BHP and ExxonMobil were not available for comment.

The future for other Australian LNG projects without FID is also uncertain.

GDF Suez and Santos are seeking alternatives for their Bonaparte floating project, Woodside has indefinitely delayed its Sunrise project, while Shell has yet to commit to its Arrow project where it has cut hundreds of positions.

"I suspect most people will be hunkering down and trying to get a real handle on how long and how far this situation will persist," Origin Energy (OGFGF.PK) CEO Grant King said, referring to falling energy prices.

Origin plans to start-up the $25 billion Australia Pacific LNG project next year and has taken steps to shore up its cash position.

For existing or under-construction projects, low prices mean smaller operating margins.

"They won't be loss making, but just won't make as much as they otherwise would have done," Tomnay said.

Shell's Prelude floating facility, set to start up in 2017 as the world's biggest maritime vessel, will likely go ahead as it is already being built.

Despite the tougher outlook, Australia's plan to become the top LNG exporter remains on track.

With projects under construction going ahead as companies treat them as sunk cost, Australia's LNG export capacity is set to more than triple to 86 million tonnes a year before 2020, putting it ahead of current leader Qatar which exports 77 million tonnes annually and U.S. expectations of selling 61.5 million tonnes per year by 2020.

By Sonali Paul and Henning Gloystein