High costs scupper Browse project

The now scrapped proposal for a multibillion-dollar gas hub in the Kimberley was simply going to cost too much to develop, according to Woodside Petroleum chief Peter Coleman.

The now scrapped proposal for a multibillion-dollar gas hub in the Kimberley was simply going to cost too much to develop, according to Woodside Petroleum chief Peter Coleman.

Speaking hours after the West Australian gas producer revealed its decision to shelve the giant Browse LNG gas hub at James Price Point, Mr Coleman said there was no clear preference among the alternative options for processing the gas.

But the joint venture partners will have to move quickly with their retention lease conditions up for re-evaluation in the coming weeks, he said.

Even so, investors welcomed the decision, sending Woodside shares 3.2 per cent higher to $36.40. Many had raised concerns over cost blowouts on one of Woodside's biggest projects. There is rising speculation that some funds earmarked for Browse could be returned to shareholders in the near term.

Friday's decision comes after more than four years; about 4.5 million work hours and an undisclosed sum of money were invested in exploring the James Price Point option.

"We will immediately engage with the Browse joint venture to recommend evaluation of other development concepts, which would include floating technologies, a pipeline to existing facilities in the Pilbara or a smaller onshore option at the proposed LNG precinct at James Price Point," Mr Coleman said.

He suggested the production schedule could be dramatically reduced if the joint venture partners went with existing facilities or new technology, rather than another new hub option, which could see five years pass before a final investment decision.

"If you can find an alternative technology path that you're comfortable with, that you don't need to do the same amount of upfront work then we could be back at the same decision point as early as two years from now," Mr Coleman said.

But he would not say what the final costing on the scrapped proposal would be, although analysts have recently made estimates as high as $US45 billion ($42.7 billion).

Mr Coleman said the project had been subject to "cost pressures" affecting others in the market.

"These are really, really large projects," he said. "These projects are very complex and probably more than a number in the industry felt some time ago.

"There are very few project teams around the world who can execute projects of this magnitude and do it consistently.

"Our strategy now is to break them up into more manageable bite sized chunks."

The clock is ticking on plans for the Browse gas as the retention leases lapse in about 20 months and the conditions on them are up for re-evaluation on June 30.

"We'll be putting proposals to the joint venture partners in the very near future," Mr Coleman said.

WA Premier Colin Barnett, who has been an aggressive proponent for the project, was notified of Woodside's decision on Thursday night, Mr Coleman said, adding that he did not believe it would put a strain on the company's relationship with the state government.

"We're very appreciative of the support the state government has particularly given us through Browse and it's been a long journey ...we know that relationship has got to continue on in the future," he said.

But Mr Barnett said moving the project offshore would be a "tragedy" and significantly diminish returns to Australia.

"This is not an isolated gas field, this is an extraordinarily large world scale resource and if it is all done with floating LNG Australia ... would not be taking advantage of its own natural resources," he said.

LNG had already risen to be one of Australia's largest exports over the past year, UBS economist Scott Haslem said. "We shouldn't underplay the immense amount of work that's being done and how that's going to contribute to the economy," he said.

Malcolm Maiden— Page 9

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