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Australian Energy Giant Woodside Delays Large Offshore L.N.G. Project

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By STANLEY REED: A version of this article appears in print on March 24, 2016, on page B2 of the New York edition

Woodside Petroleum and its partners, including the energy giants Royal Dutch Shell and BP, have decided to delay indefinitely the development of a huge liquefied natural gas project off Western Australia, the company said on Wednesday.

The decision to postpone the project, called Browse, comes as L.N.G. prices in Asia have fallen by around two-thirds since 2014. The slump is attributed to a supply glut set off largely by a building boom and by lower-than-expected demand from major customers like China.

The move “raises questions on the viability of other large L.N.G. projects” in Australia and elsewhere, wrote Neil Beveridge, an analyst at Bernstein Research in Hong Kong, in a note to clients on Wednesday.

“We’ve got a glut of supply coming into the market at a time of weak demand,” Mr. Beveridge said in an interview.

Peter Coleman, the chief executive of Woodside, which is based in Perth, Australia, said in a statement that deciding not to go ahead with Browse, whose costs were estimated at $40 billion, “represents a disciplined approach to large-scale capital investment.”

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In past years, with oil prices in the $100 a barrel range and L.N.G. prices — which are often linked to oil — also high, oil companies embarked on a series of enormous, costly projects, figuring that the revenue streams from the fuel would justify the costs.

Huge supplies of L.N.G., which is natural gas chilled to a liquid so that it can be transported on ships, are now coming onto the market from Australia. Large volumes of the fuel that are expected from the United States in the coming years will add to the oversupply, analysts say.

With prices of oil and liquefied natural gas having plummeted, executives are scrambling to extricate themselves from potential white elephants that are still in the planning stages.

Mr. Beveridge said he expected delays to other planned L.N.G. projects, including ones in Canada, and to the development of natural gas discovered in recent years off Mozambique in East Africa.

While not as large as some other Australian projects, Browse was vulnerable because of its remote location and because Woodside and its partners planned to use gargantuan floating vessels to process the fuel, adding to the complexity and cost. It was originally an onshore project, but that plan was shelved in 2013.

The delay of Browse may be a blow to the ambitions of Shell, which has been at the forefront of developing so-called floating L.N.G. The British-Dutch company is constructing a giant processing vessel and other infrastructure for another offshore Australian project called Prelude. Shell hopes to use the technology on other projects around the world, but the decision to delay Browse may indicate that the costs of floating L.N.G. are still not competitive, Mr. Beveridge said.

Mr. Coleman of Woodside said in his statement that the partners would be able to use the delay, which analysts say could last at least a decade, to work on lowering the costs.

Mitsui, another partner in Browse, said on Wednesday that it would take a 40 billion yen, or about $357 million, impairment charge on the project. David Nicholas, a BP spokesman, said the company was in agreement with Woodside on delaying Browse. Other partners in the project include PetroChina and Mitsubishi.

Shell said in a statement: “There are significant global factors in play which pose economic rather than technical challenges for the project.”



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