Oil and gas producer Woodside Petroleum Ltd has provided a huge kick-along to Western Australia's resources boom by approving the $12 billion development of its Pluto liquified natural gas project off the Pilbara coast.
Oil and gas producer Woodside Petroleum Ltd has provided a huge kick-along to Western Australia's resources boom by approving the $12 billion development of its Pluto liquified natural gas project off the Pilbara coast.
Woodside's decision represents the single largest investment decision in an Australian resources project and is the first LNG project to get the go-ahead anywhere in the world in nearly 18 months.
The cost of the Pluto project is double initial estimates that were made in August 2005 when Woodside said it was considering development of the field.
This reflects the massive cost pressures that are facing all major resources and infrastructure projects, especially in WA's remote North West.
The project is expected to create up to 3,000 direct jobs during construction and 300 jobs during operations, and more than half of the expenditure on the project is expected to be spent in Australia.
The expected output of the Pluto LNG plant, to be located near the North West Shelf Venture's existing LNG plant on the Burrup Peninsula, will be 4.3 million tonnes per annum, lower than the initial expectation of 5-6 million tonnes.
Pluto also announced that it would sell a 10 per cent equity stake in the proiject to its two major customers, Tokyo Gas and Kansai Electric.
The project is based on Woodside's Pluto and Xena gas fields located about 190 kilometre north-west of Karratha.
The initial phase will include a single LNG production train with forecast production of 4.3 million tonnes per annum connected by a 180km, 36-inch offshore pipeline to a platform in 85 metres of water.
The platform will be connected to five subsea big bore wells on the Pluto field, with first gas to be produced in late 2010.
"To date approximately $796 million has been spent on all phases of the Pluto field and LNG project," Woodside said.
"The board approved additional funding of up to $11.2 billion for project on a 100 per cent basis.
"Later works, requiring additional funding approval, will include compression and the tie-in of the Xena field.
Woodside had previously indicated it would cost in the order of $6 billion to $10 billion to develop, with many analysts expecting it to be closer to the upper end due to industry-wide cost pressures.
"Reservoir studies have concluded that the combined dry gas volume estimate for the Pluto and Xena fields has increased from 4.5 trillion cubic feet to five trillion cubic feet," Woodside said.
Woodside chief executive Don Voelte said the decision to proceed with the Pluto project was the most significant step in Western Australia's gas industry since the initial development of the North West Shelf Venture in the 1980s.
Woodside operates, and is a one sixth owner of, the North West Shelf Venture.
"The Pluto LNG project will join the North West Shelf Venture in underpinning Woodside for decades into the future, and showcases the unique position Woodside enjoys among its oil and gas peers," Mr Voelte said.
Mr Voelte said the Pluto project would provide an important new supply of LNG to the Asia-Pacific region, where demand is expected to outstrip supply well into the next decade.
"Pluto will play a critical role in meeting Asia-Pacific demand and will make a substantial contribution to Australia's export income," he said.
The Environmental Protection Authority's gave the project provisional approval earlier this month, despite development plans failing marine standards set by the environmental watchdog.
The EPA said the project could go ahead if Woodside agreed to a more substantial offset package and a range of other conditions.
Woodside has already approved commitments of about $1.4 billion for Pluto to provide funding for long lead items and site preparation for the processing plant on the Burrup peninsula.
The Pluto development, which is initially expected to produce about five to six million tonnes of LNG a year, is scheduled to deliver its first gas to Japanese customers by the end of 2010.
Sales contracts have been signed with Kansai Electric and Tokyo Gas.
Woodside is Australia's largest independent oil and gas producer.
The project will be funded with free cash flow from Woodside's Australian operations, a fully underwritten dividend reinvestment plan and the issuance of corporate debt.
Preliminary site works for the onshore facilities began in January 2007.
In addition to the LNG production train, the onshore facilities will include storage tanks and a loading terminal.
Woodside shares were down 56 cents to $26.34, in a weaker broader market.