The warning within Woodside's double dating game
Toronto
Has no one told Woodside that you are supposed to let a suitor down slowly? Its decision to abandon the onshore Browse liquefied natural gas option was sufficiently bad news for Australia's resources sector to absorb.
But for news to emerge on the same day that Woodside is proposing an LNG export project on Canada's Pacific coast? That's just cruel.
At first glance, reports that Woodside has filed a proposal to build an LNG export terminal on Canada's Pacific coast suggest the company may be pivoting its focus toward North America, perhaps in an effort to escape the cost blowouts that have hit a rising number of the LNG plants under construction in Australia.
But what does it really mean?
Well, Australia and Canada are not yet apple-to-apple comparisons when it comes to LNG.
Canada is years away from being able to compete with Australia for Asian LNG export markets. There is not only a total lack of existing LNG export infrastructure along the coast, but also a lack of pipeline infrastructure to get the LNG to the coast. Everything is in the planning stages, and Woodside's proposal is one of 10 that the British Columbia government will review, with at least two more proposals potentially in the works.
What is clear is that not all the proposed projects will be built, and the fact that Woodside's proposal was one of four announced at the same time last week should not suggest that the region is on the cusp of an LNG export boom.
“The disservice this does to the public is that it gives the impression that there is a mad gold rush to develop liquefied natural gas in British Columbia,” the province's opposition energy critic, John Horgan, said last week.
“The market will determine how many, if any, of these projects proceed.”
Assuming that some, but not all, of the proposals are built, where does Woodside stand?
Certainly not at the top of the heap. BC's energy minister, Rich Coleman, said Woodside's proposal was unexpected.
Several rival proposals are much further along, such as an Imperial Oil-ExxonMobil joint proposal and a Nexen Inc proposal that both have large land positions in the region of northeast BC that is the focal point of development. While a $C4.5 billion ($4.2 billion) proposal by Apache Corp and Chevron has advanced to site preparation work and has a revenue-sharing agreement with 15 aboriginal groups for a pipeline that would carry gas across the province to the facility.
Meanwhile, Spectra Energy has a contract with BG Group to build a pipeline to BG's proposed LNG terminal, while TransCanada Corp has a contract for a pipeline with Petronas.
So Woodside has some catching up to do.
Further, if Woodside is chasing cost savings, Canada may not be the greener pasture it hopes for.
Woodside chief executive Peter Coleman said cost savings would be a major factor in planning any new Browse development. But that motive would also underpin any meaningful shift from Australian LNG investment to Canada, and Canada can hardly make a rock-solid case for offering a lower-cost LNG option for the likes of Woodside.
Although Canada generally offers lower operating costs than Australia, Canada's LNG export sector is in such early development stages, and its infrastructure so underdeveloped, that it is near-impossible to accurately forecast construction and operating costs when so much of the LNG Asian export infrastructure needs to be built from scratch because Canada's energy export infrastructure is currently geared towards north-south trade with the United States.
In addition, the effort to ramp up LNG Asian exports up from nothing to a boom so quickly could see Canada in a few years facing the same cost blowout issues, brought on by worker shortages and spiking material costs, that currently hamper Australia's resource investment pipeline.
The uncertainty surrounding the outlook for LNG prices in Asia is, of course, an additional issue for current and future LNG exporters everywhere.
Make no mistake: the potential for exporting LNG from Canada's Pacific coast is significant. Gas reserves in western Canada are thought to hold several hundred years' worth of supply and if the infrastructure is built, the route to hungry Asian energy markets is a relatively short, straight shot across the Pacific Ocean.
Also, the combination of Canadian LNG exports to Asia and the US shale gas boom will undoubtedly impact global LNG markets, Australia and elsewhere.
But with Canadian LNG exports to Asia still years away from flowing through still unbuilt pipelines and export terminals, Woodside's simultaneous Browse pullback and Canada LNG proposal should be seen not as a threat to Australia's LNG sector, but rather a sobering reminder that Australia's advantage is its head-start.
And the more time lost worrying about whether Australia remains the object of Woodside's affection – not to mention time lost to cost blowouts and red tape – the greater the chance that the likes of Canada and the United States have in winning a high-stakes game of LNG catch-up.