Allies in Australia's Oldest LNG Plant Spar in Race for Gas

(Bloomberg) -- After partnering for nearly three decades at Australia's oldest liquefied natural gas export plant, Woodside Petroleum Ltd. and Chevron Corp. are competing to shape the next phase of the country's gas development.

Both are vying to build a pipeline from hundreds of kilometers offshore that will allow them to develop their own fields, as well as let third parties ship gas from isolated resources, to existing liquefaction plants along the west Australia coast. Whoever moves quickest will likely be able to choose which supplies are developed first and where they are processed.

“While third parties will be able to supply gas, ultimately the infrastructure owner will be able to prioritize which gas goes first,” Sanford C. Bernstein & Co. analyst Neil Beveridge said in an email. That “gives the asset owner tremendous optionality given the number of stranded gas assets.”

Both the proposed pipelines start at Woodside's massive Scarborough field, which is estimated to hold about 7.3 trillion cubic feet of gas, and terminate at the Burrup Peninsula, where the Woodside-operated Pluto and North West Shelf LNG plants are situated. NWS, where Chevron is one of six partners, shipped its first cargo in 1989 and is expected to have spare liquefaction capacity from 2021 as the fields that have fed it dry up.

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The plant's owners in July agreed to process third-party gas at the operation as they seek to extend its life. While the massive Browse project operated by Woodside will be the anchor tenant, its gas is not expected to start filling the plant until 2026, about five years after the current fields feeding the facility start to empty.

To meet the shortfall, Woodside plans to initially use gas from fields that supply its Pluto plant, piping the fuel to the neighboring NWS through a proposed onshore pipeline. From around 2023, it's envisaged third-parties will utilize a planned pipe from Scarborough to Pluto. Potential untapped resources include Western Gas Corp.'s Equus project and fields held by Chevron, Woodside Chief Executive Officer Peter Coleman said last month.

While first output from Scarborough is expected from 2023, Woodside plans to use its gas to feed a second plant proposed for Pluto, rather than at NWS.

“There are a number of fields in difficult locations that could tap into a shared pipeline,” said Graeme Bethune, chief executive officer of Energy Quest, an Adelaide, Australia-based consultant. “It really is a case of first-mover advantage, which at this stage appears to be Woodside.”

‘Change in Attitude'

Woodside shares rose as much as 1.1 percent to A$36.54 in Sydney, and traded at A$36.45 as of 1:24 p.m. local time. The benchmark S&P/ASX 200 Index added 0.6 percent, climbing for the first time in four days.

A Woodside spokeswoman, who didn't address whether the company was in talks with Chevron about collaborating on a pipeline, said confidentiality agreements to facilitate third-party data exchange and evaluate the feasibility of future tie-ins to a pipeline are progressing. Chevron is engaging with multiple resource and infrastructure owners across the basin to identify opportunities for collaboration, a spokesman said.

Chevron's proposal, called the Trans Carnarvon Basin Trunkline, would tap into Scarborough and other offshore fields, piping gas to onshore facilities including NWS, Pluto and its Wheatstone LNG export project, Nigel Hearne, the company's Australian managing director, said in May. Woodside agrees on the shared pipeline plan, it just wants to be the developer, according to Coleman.

“Woodside and Chevron will probably need to cooperate,” Chris Meredith, a senior analyst at consultant Wood Mackenzie Ltd., said from Perth. “While third-party access infrastructure is something that we see in other parts of the world, we don't see it offshore Australia. You can see the benefits of a shared pipeline, it will just need a step change in attitude.”

--With assistance from Adrian Leung.

To contact the reporter on this story: Ben Sharples in Hong Kong at bsharples@bloomberg.net

To contact the editors responsible for this story: Ramsey Al-Rikabi at ralrikabi@bloomberg.net, Aaron Clark, Alpana Sarma

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