By Sonali Paul
MELBOURNE (Reuters) - A slump in energy prices that has led to the deferral of liquefied natural gas (LNG) projects around the world is set to be an unexpected boon for some producers trying to kickstart new ventures in gas-rich western Australia.
Offshore and onshore projects led by Woodside Petroleum <WPL.AX>, Chevron Corp <CVX.N> and Japan's Mitsui <8031.T> are in the mix to plug a looming supply gap at North West Shelf, Australia's oldest and biggest gas export plant.
The shortfall follows a decision in March to put the giant offshore Browse gas project on ice after its owners, led by Woodside, balked at the $20 billion price tag to develop the field amid a slump in LNG prices to record lows.
Browse had been lined up as the new anchor source for the North West Shelf from the mid-2020s, eventually feeding 10 million tonnes per annum (mtpa) of LNG out of the plant's 18.5 mtpa capacity.
The race is now on to fill that gap.
"The North West Shelf could be emerging as the largest demand sink in the Western Australian gas market," said Stuart Nicholls, managing director of Strike Energy <STX.AX>, which is aiming to develop its onshore West Eregulla field.
To date, the 31-year-old North West Shelf plant, Australia's biggest ever resource development, has been supplied by fields owned by the NWS Project -- BHP Group <BHP.AX> <BHPB.L>, BP Plc <BP.L>, Chevron, Royal Dutch Shell <RDSa.L>, Woodside, and a joint venture of Japan's Mitsui & Co and Mitsubishi Corp <8058.T>.
Keeping the plant's five production trains at full tilt and maintaining the project's market share in Asia is a priority for the NWS partners, as well as the state government which earns rich revenues from gas sales.
"It is a challenge for the North West Shelf now to stay full, but it's something that all the partners know and they're working on," Peter Coleman, chief executive of Woodside, the operators of the NWS, said earlier this month.
FILLING THE GAP
With Browse out, the NWS plant is expected to have 5.5 million tonnes a year of spare capacity in 2026, rising to 7 mtpa in 2027, consultants Wood Mackenzie estimate.
Supplying that gas pits Chevron's Clio Acme project against two projects owned by Woodside -- Pluto, which is already producing, and Scarborough, which is co-owned by BHP and due for a final investment decision in 2021.
Both companies plan to supply gas through a 5 km (3 mile) interconnector pipeline being built by Woodside from its Pluto facilities to the NWS plant, due to be completed in 2022.
Chevron declined to say whether the oil price rout has affected its plans for Clio Acme, but said in emailed comments it continues to work with other holders of acreage off Western Australia on sharing infrastructure.
For Woodside, sending gas from Pluto to NWS allows it to defer building a second gas liquefaction train for the project.
An initial 1.5 mtpa through the interconnector will give it LNG at $2.50 per million British Thermal Units (mmBTU), much less than the $7 per mmBTU from new LNG projects around the world, said Credit Suisse analyst, Saul Kavonic.
"The delay in Browse can benefit Woodside strategically as it increases the value of Woodside's interconnector," Kavonic said.
Woodside declined to comment.
The supply push is also opening up new possibilities for onshore gas projects, potentially giving them access to export markets, which offer better returns, as well as providing more cheap gas to the NWS partners.
Domestic gas prices in Western Australia are among the lowest in the world as the state government mandates that LNG producers reserve 15% of export volumes for the tiny local market.
The dominant local gas supplier, Santos Ltd <STO.AX>, would be happy to talk about getting some of its gas into the NWS plant, "but we are not waiting for that to happen," Chief Executive Kevin Gallagher told Reuters in emailed comments.
Still, the company needs access to higher priced markets outside Western Australia, like Asia and eastern Australia, to be able justify developing new gas fields, he said.
Along with Strike Energy's West Eregulla field, North West Shelf partner Mitsui is eyeing development of the Waitsia gas field, one of the largest conventional onshore finds in the past 40 years for Western Australia.
Mitsui said it is targeting a financial investment decision with partner Beach Energy <BPT.AX> in the September quarter.
It declined to comment on talks with the NWS project, although analysts said project partners could be in the box seat for new supply.
Strike's Nicholls said he is initially looking for Mitsui to create a beach-head into NWS for onshore gas.
Including pipeline transportation, onshore gas could get into the NWS plant for less than $5 per mmBTU, still well below the cost from new international projects.
"We're moving to a period of time where Western Australia's LNG is going to be in an advantaged position, with lower input costs, based on Australian dollar inputs and U.S. dollar pricing for its product, and also its proximity to Asian demand centres," said Nicholls.
(Reporting by Sonali Paul; editing by Richard Pullin)