Decisions on two LNG projects worth a combined $22 billion are likely to be delayed from this year to 2021, according to analysts Wood Mackenzie, while many producers have cut back to only essential staff.
Decisions on two LNG projects worth a combined $22 billion are likely to be delayed from this year to 2021, according to analysts Wood Mackenzie, while many producers have cut back to only essential staff.
Woodside Petroleum's Scarborough and Pluto Train Two project, and Santos's Barossa to Darwin LNG backfill, may both be pushed back because of the COVID-19 crisis and a recent drop in the oil price.
That follows recent slippage in the timeline for Woodside’s other big project, Browse, with the front end engineering and design period extended.
A decision on that $27 billion development is due in 2021.
The International Energy Agency has already warned oil demand would drop this year for the first time since 2009, while geopolitical tensions have created a supply glut.
Wood Mackenzie senior analyst David Low said petroleum producers would need to prepare balance sheets for a prolonged period of low oil prices.
"If prices average US$30 per barrel in 2020, the revenues of Woodside and Santos will fall by 22 per cent and 13 per cent, respectively," Mr Low said.
“Delaying discretionary spending and preserving short-term cashflow will become priorities, which means the ability to fund and willingness to undertake new capital-intensive projects will come under scrutiny.”
But Wood said the companies would take a long term view on oil prices.
Wood Mackenzie senior analyst Daniel Toleman said Barossa’s value would be in conjunction with its role in boosting capacity utilisation at Darwin LNG.
“We think Barossa will still be the first to take FID, but it is likely to slip to 2021," Mr Toleman said.
"Santos does have some levers to alleviate the capital intensity pressure.
"With the PNG Expansion still in limbo, we believe the company will delay the timeline of its other key growth projects.
"This will free up capital to prioritise Barossa.”
Mr Low said Woodside might consider making decisions on Scarborough and Pluto Train Two separately to spread out capital requirements.
"This would see the US$6.2 billion Scarborough developed first, with a delay to Pluto Train 2 construction," he said.
“Scarborough gas would then need to be processed through the North West Shelf (NWS) facility.
"If the tariff negotiation to allow third-party gas access at the NWS is finalised this year, this could be a real possibility.”
Woodside has already announced it will reduce staff numbers at its Karratha Gas Plant, part of the North West Shelf Venture, while Chevron has made similar moves at its facilities.
Today, Santos said it had moved to minimal safe staffing numbers at its WA operations, including Varanus Island.
"We have activated minimum staffing plans to ensure Santos complies with public health and government requirements and that our sites remain low risk and controlled environments," a spokesperson said.
"This protects our people from the potential spread of COVID-19 and ensures we can continue to keep the lights on and keep our hospitals, schools, supermarkets and other services running.
"Santos supplies 40per cent of Western Australia’s domestic gas, so it’s vital we keep gas flowing to keep jobs going and the economy and society functioning.
"Minimum safe staffing for production will continue while public health and government requirements are in place."
