By Rebekah Kebede
PERTH, April 12 (Reuters) - Woodside Petroleum has shelved plans for its $45 billion Browse liquefied natural gas project in Western Australia, saying it will consider a floating LNG plant after deciding the onshore development did not make economic sense.
Global energy firms have invested $140 billion into six LNG plants in just two and half years as Australia ramps up production on its way to becoming the world's largest exporter of the clean burning energy source.
But Australia's LNG sector has seen investor interest cool due to huge costs overruns and with competition from North America where new supplies of gas have been exploited from shale.
The Browse decision could spell an end to new onshore gas projects in Australia in favour of offshore plants that can be built more cheaply and face fewer environmental and landowner hurdles.
'This decision will surprise few as the proposed onshore development always looked too economically, technically, environmentally and socially risky for too little reward,' analysts at Macquarie said in a note.
Woodside also appears to be pivoting its focus towards North America, confirming on Friday that it had lodged an expression of interest to develop a Canadian LNG project.
Browse LNG was to be Woodside's biggest LNG development yet, but has been plagued by controversy over its proposed location at James Price Point on the northwest coast, coming under fire from environmentalists and some indigenous landowners.
The site is also home to the world's largest dinosaur footprints and sacred Aboriginal sites known as 'songlines'.
Woodside CEO Peter Coleman said any new development would have to provide significant costs savings, adding: 'our customers are saying to us very clearly,'No longer can we pay for your expensive projects'.'
A floating LNG plant is considered to be the most likely alternative for Browse by many in the industry.
JP Morgan has estimated that a floating project would mean a 20 percent cost saving with capital expenditure of $35.5 billion versus $44.6 billion for the onshore development option.
Estimates of the cost of the onshore plant vary, but some analysts had said it could be as high as $48 billion.
Of seven LNG plants under construction in Australia, all of which are due to come online in 2014 or later, four have already announced cost blowouts ranging from 15 to 40 percent.
Woodside owns a 31 percent stake in Browse, which it is developing with partners Royal Dutch Shell, BP Plc , PetroChina, Mitsui & Co and Mitsubishi Corp.
Shares in Woodside, which is worth around $30 billion, rose 3 percent on expectations it will develop a cheaper option, but Japan's Chiyoda Corp, which has a contract for the project, tumbled 11 percent.
Building a floating plant in Asia and towing it into place off the Western Australia coast is likely to save billions of dollars in construction costs.
Shell, which owns 24 percent of Woodside and is the second-largest shareholder in Browse, is considered to be the global frontrunner in developing floating LNG technology.
'We believe Shell's floating LNG technology is the fastest, most economic and the best technical solution available for Browse,' Shell Australia country chair Ann Pickard said in an emailed statement.
Another joint venture partner, PetroChina, said on Friday it is still deciding whether it will invest in Browse and is studying the project's feasibility.
Earlier this month, Exxon Mobil and BHP Billiton revealed plans to build the world's largest floating LNG vessel offshore northwestern Australia, producing 6-7 million tonnes per annum (mtpa) of LNG from 2020-2021.
Woodside's Browse had been targeting 12 mtpa.
The decision to shelve Browse is a blow to West Australia's premier, Colin Barnett, who won reelection last month and has been a vocal proponent of establishing a gas export hub at James Price Point, with Browse LNG as the cornerstone project.
Another option for the plant would be for it to be delayed until construction costs ease, something some analysts expect to occur once the existing plants under construction in Australia come online.
'If Shell were to persuade Woodside that they need to take more time on this, I don't think Shell would be criticized. I think that would be seen as a sensible decision at this point,' Tony Regan, an analyst with Tri-Zen International in Singapore said.
Shell has delayed its Arrow LNG development in eastern Australia and has said it is in no hurry to proceed with an expansion of Gorgon LNG, in which it is a stakeholder, leading some to believe that the company would prefer to wait for costs to decrease before making more large investments in Australia.
Prime Minister Julia Gillard said the decision was a commercial one and did not mark the end of the country's near decade-long boom in resources.
'We haven't seen the peak of the investment phase into resources yet. And we are yet to see the peak of the production phase,' Gillard told reporters in Sydney.
'So we will be seeing the resources boom at work in our economy for a long time to come.'
(Additional reporting by James Grubel in Canberra, Charlie Zhu in Hong Kong, and Karolin Schaps in London; Writing by Lincoln Feast; Editing by Ed Davies) Keywords: AUSTRALIA BROWSE/
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