Woodside Petroleum on Friday displayed confidence that its three ambitious LNG projects – the Pluto, Browse and Greater Sunrise developments – are all running on track despite past obstacles. In spite of its assurances, however, the Western Australian company continues to be bogged down by steep costs, labour shortages and political disputes.
The first Pluto LNG liquefaction station is still on schedule to deliver its first cargo in March 2012, rather than the 2011 start-up date initially expected, and Woodside is continuing to explore for gas to feed its planned expansion while also discussing possible supply deals with others, the company said in its third quarter results on Friday.
Meanwhile, the front-end engineering and design studies for the Browse LNG Development are ongoing, as are talks between Woodside and the governments of Australia and East Timor over the stalled Sunrise project, it said.
All three projects, however, have suffered and could continue to suffer from the challenges of building such immense liquefaction stations in a growingly competitive market, analysts said on Friday.
“They’re building train one of Pluto at the moment, and I think to some extent they have just lost control of their budget,” Andy Flower, an independent LNG consultant, told Interfax. “Part of it is just doing business in Australia – it’s an expensive place to do business – and part of it is mistakes they have made in developing the project.”
Labour is a particularly large expense for the oil and gas industry in Australia, where workers earn an average of $140,000 per year compared to a global average of $76,000, according to a survey this year by Manpower Group. A typical LNG project needs between 900 and 1,000 employees to sustain its operations, it said.
The cost, along with a growing labour shortage, is also causing delays and cost overruns for other conventional and unconventional LNG projects in Australia, analysts noted.
But these labour costs, combined with project-specific setbacks, have dogged Woodside in particular. The company revealed last year that it would have to rebuild the Pluto project’s flare stack, which burns the excess build up of gas, because it could not withstand cyclones – a common occurrence off Australia’s northwest coast.
As a result of these troubles, Fitch Ratings assigned Woodside a negative outlook in October 2010, as did Moody’s this month. Still, despite the past problems, the company’s new chief executive, Peter Coleman, appears to be taking a “more measured” approach to the projects, an analyst for Fitch told Interfax.
“Delays for Pluto could be attributed to an aggressive schedule and budget, but it’s also important to bear in mind that when these were set in 2007 there were no significant competing projects for development resources,” the analyst said.
The company is now waiting to decide whether to go ahead with plans to build two additional trains for Pluto until after the first train begins operating, he noted.
For Browse, meanwhile, Woodside has struggled with tough negotiations over a native title agreement, signed in July, and apparent differences with its joint venture partners, BHP Billiton, Chevron and Royal Dutch Shell.
The Sunrise development has also been blocked as the government of East Timor has pushed to build an onshore plant, which would be more profitable for its country, while Woodside argues in favour of a floating facility that could avoid security concerns in East Timor.
Woodside LNG projects still dogged by delays
Woodside’s Pluto LNG terminal, under construction in Karratha, Western Australia. (Woodside)
Related stories
Woodside Petroleum on Friday displayed confidence that its three ambitious LNG projects – the Pluto, Browse and Greater Sunrise developments – are all running on track despite past obstacles. In spite of its assurances, however, the Western Australian company continues to be bogged down by steep costs, labour shortages and political disputes.
The first Pluto LNG liquefaction station is still on schedule to deliver its first cargo in March 2012, rather than the 2011 start-up date initially expected, and Woodside is continuing to explore for gas to feed its planned expansion while also discussing possible supply deals with others, the company said in its third quarter results on Friday.
Meanwhile, the front-end engineering and design studies for the Browse LNG Development are ongoing, as are talks between Woodside and the governments of Australia and East Timor over the stalled Sunrise project, it said.
All three projects, however, have suffered and could continue to suffer from the challenges of building such immense liquefaction stations in a growingly competitive market, analysts said on Friday.
“They’re building train one of Pluto at the moment, and I think to some extent they have just lost control of their budget,” Andy Flower, an independent LNG consultant, told Interfax. “Part of it is just doing business in Australia – it’s an expensive place to do business – and part of it is mistakes they have made in developing the project.”
Labour is a particularly large expense for the oil and gas industry in Australia, where workers earn an average of $140,000 per year compared to a global average of $76,000, according to a survey this year by Manpower Group. A typical LNG project needs between 900 and 1,000 employees to sustain its operations, it said.
The cost, along with a growing labour shortage, is also causing delays and cost overruns for other conventional and unconventional LNG projects in Australia, analysts noted.
But these labour costs, combined with project-specific setbacks, have dogged Woodside in particular. The company revealed last year that it would have to rebuild the Pluto project’s flare stack, which burns the excess build up of gas, because it could not withstand cyclones – a common occurrence off Australia’s northwest coast.
As a result of these troubles, Fitch Ratings assigned Woodside a negative outlook in October 2010, as did Moody’s this month. Still, despite the past problems, the company’s new chief executive, Peter Coleman, appears to be taking a “more measured” approach to the projects, an analyst for Fitch told Interfax.
“Delays for Pluto could be attributed to an aggressive schedule and budget, but it’s also important to bear in mind that when these were set in 2007 there were no significant competing projects for development resources,” the analyst said.
The company is now waiting to decide whether to go ahead with plans to build two additional trains for Pluto until after the first train begins operating, he noted.
For Browse, meanwhile, Woodside has struggled with tough negotiations over a native title agreement, signed in July, and apparent differences with its joint venture partners, BHP Billiton, Chevron and Royal Dutch Shell.
The Sunrise development has also been blocked as the government of East Timor has pushed to build an onshore plant, which would be more profitable for its country, while Woodside argues in favour of a floating facility that could avoid security concerns in East Timor.