Woodside eyes Browse and East Timor’s Sunrise gas as war in Europe tightens energy markets

Liquefied pure fuel (LNG) developer Woodside (ASX:WPL) is contemplating new funding alternatives, together with the Browse and Better Dawn fields, on expectations that new provide might be wanted to alleviate international power market tightness.

The lead contender is the Browse improvement, Meg O’Neill, chief govt officer of Perth-based Woodside, informed Bloomberg. The multibillion-dollar collaboration with majors together with BP (LON:BP) and Shell (LON:SHEL) had struggled to make progress with a earlier plan to develop it right into a floating LNG (FLNG) challenge deserted in 2016 on account of poor economics.

Nevertheless, the struggle in Ukraine, which has led to nations avoiding purchases from high exporter Russia, the power transition, in addition to surging demand, are making a interval of upheaval that has seen an unprecedented tightening of worldwide pure fuel provide. Woodside and different Australian producers are becoming a member of their friends from the US to Qatar in exploring methods to spice up exports and bridge the worsening deficit.

“The trade has under-invested for the previous couple of years,” O’Neill mentioned. “We’re seeing the market being structurally tight — to have the ability to handle that, extra funding is required.”

“The implications of Russia’s invasion of Ukraine have reverberated globally, exacerbating already tight power markets, notably for LNG. This has resulted in unprecedented volatility and value spikes to ranges not seen because the early a part of final decade,” O’Neill mentioned within the firm’s quarterly monetary outcomes launched yesterday.

Woodside permitted the $12 billion Scarborough LNG export scheme final yr however can also be new candidates for improvement, together with the Better Dawn fields, as international power market dynamics shift.

Better Dawn

The event of Woodside-operated Better Dawn, which straddles Australian and East Timorese seabeds, has stalled over the previous decade as East Timor’s authorities insisted the fuel be processed at a yet-to-be constructed LNG export facility on its southern shores.

This improvement possibility was thought-about commercially unviable by Woodside and its three way partnership companions. In consequence, traders thought-about Better Dawn to be politically stranded and of negligible worth, which noticed ConocoPhillips and Shell eagerly promote their challenge fairness to East Timor, often known as Timor Leste, in 2019. Considerably, in 2020, Woodside wrote down the carrying worth of Dawn to zero {dollars}.

Nevertheless, O’Neill informed the Australian Monetary Assessment final week that “the economics of taking fuel to Timor Leste and constructing new crops simply are prohibitive – in order that’s one thing that should get cracked – however the production-sharing contract (PSC) phrases have to get sorted out first.”

“The sphere is nearer to present LNG infrastructure (in Australia), there’s probably some fascinating alternatives there to make use of present amenities. So simply from an economics perspective, taking the fuel to Timor-Leste and constructing a brand-new plant simply doesn’t make sense.”

Negotiations between the Woodside-led Dawn Joint Enterprise, which incorporates Osaka Fuel, in addition to Timorese nationwide oil firm TimorGAP, and the governments of Australia and East Timor on the brand new Better Dawn PSC commenced in November 2018. A supply near the challenge informed Power Voice that the JV don’t have any perception as to when the negotiations could be concluded.

Readul Islam, an Asia Pacific upstream specialist at Rystad Power informed Power Voice, that negotiations round PSC phrases between governments sometimes “transfer at a glacial tempo even at one of the best of occasions, and Covid definitely hasn’t helped.”

“Now, after face-to-face conferences between the 2 sides earlier this yr, my understanding is that the newest phrases have been forwarded to the Dawn Joint Enterprise for its response,” he added.

“Whereas the state of affairs in Europe has lit the hearth beneath international unsanctioned fuel tasks, it’s troublesome to see it translating into significant motion at Dawn. The naked truth is Timor Leste wants this challenge rather more than Woodside does,” cautioned Islam.

Furthermore, the looming Woodside-BHP Petroleum merger will inject new tasks into Woodside’s portfolio, and “Dawn will fade even additional into the wallpaper at Woodside,” he added.

“As soon as the PSC phrases have been labored out, I really feel the one circumstance which may elevate Woodside’s curiosity within the challenge is that if it transitions to a liquids-stripping challenge. Timor Leste may additionally profit by getting some early cashflow earlier than having to deal with the large investments required to monetise Dawn fuel,” famous Islam.

A liquids-stripping challenge would see Woodside extract the oil from Better Dawn and export it to market by ship instantly from the sphere, whereas leaving the fuel within the floor to be developed later.

Woodside has insisted it won’t spend money on any LNG export infrastructure onshore East Timor as it’s thought-about commercially unviable. The Australian operator has beforehand mentioned it could spend money on the challenge’s upstream part solely, leaving East Timor to finance the onshore export plant and pipelines, anticipated to value a minimum of $14 billion. Credit score rankings company Fitch Options has beforehand warned of the dangers related to the proposed Better Dawn onshore improvement.

Certainly, when East Timor’s present authorities got here to energy in 2020 it started reassessing the coutnry’s formidable petroleum improvement plans, which embrace the Woodside-operated Better Dawn challenge, after discovering the financial evaluation behind its proposed schemes was inaccurate.

Nevertheless, Jose Ramos-Horta’s victory in East Timor’s presidential runoff election towards incumbent President Francisco “Lu-Olo” Guterres earlier this month may see the nation’s plans revived for the onshore greenfield LNG challenge.

Horta is backed by Xanana Gusmao, the nation’s de facto energy dealer. The Dawn challenge was the centrepiece of East Timor’s strategic improvement plan formulated in 2011 by Gusmao and his political celebration Nationwide Congress for Timorese Reconstruction (CNRT).

Gusmao, a towering determine of Timorese politics who has served as president and prime minister prior to now, has raised unrealistic expectations of employment alternatives and financial advantages from piping Dawn fuel to East Timor for processing.

Develop Better Dawn’s Oil First?

Woodside has indicated that it may first develop the sphere’s massive liquids assets after 2027, leaving the fuel to be produced by means of an onshore LNG export facility at a later date. Crucially, a brand new PSC will have to be agreed earlier than any progress on this feature may be made.

Business observers consider the most definitely improvement possibility for Better Dawn fuel might be as backfill for the Ichthys LNG plant or as provide for a second liquefaction prepare at Darwin LNG in northern Australia put up 2030.

In April 2019, the federal government of East Timor accomplished its buy of ConocoPhillips’ 30% curiosity and Shell’s 26.56% curiosity within the Better Dawn fields, giving Timor GAP, the nationwide oil firm of East Timor, a 56.56% curiosity within the fields. Woodside holds a 33.44% curiosity with Osaka Fuel on 10%.