Browse, North West Shelf back on the shelf - implications for other possible white elephants

Australia's hopes of the resources boom continuing have well and truly faded.  There was further bleak news with the announcement by Woodside and its energy giant partners, last week that they would put the $40 billion Browse back on the shelf, indefinitely.  Pardon the pun! Its no joke.

The North West Shelf is an extensive oil and gas region off the coast of Western Australia, in the Indian Ocean.  The region has estimated hydrocarbon reserves of 33 trillion cubic feet (930 km3).  It is Australia’s largest resource development project and has a considerable number of oil and gas wells, pipelines, production areas and support facilities.  It involves the extraction of petroleum at offshore production platforms, onshore processing and production and export of liquefied natural gas. This was the largest engineering project in the world in the early 1980’s with investments so far of around $A 25 billion.  Only about one third of the reserve is estimated to have been produced to date. Woodside is the project operator, along with five other partners: BHP Billiton; BP; Chevron; Royal Dutch Schell (which also owns 24% of Woodside through Shell Australia); Japan Australian LNG (a venture between Mitsubishi and Mitsui).  There's a nice map on Wikipedia.

The main reason given for this delay is the current low oil price and the LNG price in a similar slump, combined with the large volumes of LNG currently coming onto the market from other Australian projects.  Large volumes are also expected from the US in the coming years.  The circumstances have conspired to create a situation of over-supply and weak demand.

A recent report in the International NY Times (INYT) suggests that similar shelving could be on the cards for other 'potential white elephant' projects in Canada and Mozambique, for example.  The INYT also reports that Australia's woes have been exacerbated by an LNG price war with Qatar, and predicts that demand for LNG will not improve until after 2023.

Those following this blog would know of my preoccupation with the development of the Greater Sunrise area.  My recent prediction that the joint development between Australia and Timor L'Este is likely to languish in the ‘too hard’ basket, or the 'white elephant' basket, might just come true.  I said in my previous post, some commentators are projecting that thirty years from now there will be a huge amount of oil available – but no buyers. Maybe we won't have to wait that long for that to be a reality.

Is the party over? Australian oil and gas companies report huge losses

Is the golden age of the oil and gas industry almost over? ...

Looking at the downturn in global oil prices it might seem that way for Australia.

Oil and gas companies are reporting losses, the industry is shedding jobs and oil prices continue to
decline.

Production was 7% up for the year but because of the lower crude prices, profits are down according to Santos, as they posted a 99% fall in profits for the 12 months to December 2015. The dramatic fall in profit also includes write downs on various assets of A$3.92bn over the year, according to the BBC.

They're not the only ones! 

Recently the BBC reported that Woodside put its dramatic decline in profits down to the global fall in oil prices (down by over 45% in 2015).

Is this a case of price fluctuations due to global political manoeuvring, inappropriate regulation crippling the industry in Australia, or is the oil age coming to an end because of a lack of demand?

Royal Dutch Shell is laying off thousands of workers and its chief executive is preparing the company to try and be profitable if there is an extended period of low oil prices according to City A.M. If you look at all the major oil and gas players, in Australia they have shed a good number of employees, according to Peter Botten, Managing director of the Australian listed Oil Search, in an interview with the ABC. He says that a quarter of the oil and gas industry jobs have gone (during 2015) based on numbers of employees employed directly by oil and gas companies.

A year ago, the news of world oil price falls were shocking (as oil prices fell from over $100 to around $50 a barrel). Because there was so much being pumped out of the ground and not enough industrial demand in the world to use it all – people thought this dip in prices would be temporary.

But those hopes have now faded!

Some cmmentators have projected that thirty years from now there will be a huge amount of oil – and no buyers.

Oil will be left in the ground.
The Stone Age came to an end, not because we had a lack of stones, and the oil age will come to an end not because we have a lack of oil.





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Note: How is the global crude price decided? Brent crude has overtaken WTI as the global crude price index, as Energy and Capital Explains. International benchmark Brent crude this morning is up by around two per cent at $33.08, however US West Texas Intermediate jumped by over over four per cent to $32.84, up from under $30 at the close of oil trading on Friday 19th February 2016, according to City A.M. comparing the current price comparing the two benchmarks.





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