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BHP versus WA government

A war of words has broken out between several large resources, oil and energy companies and the West Australian state government.

BHP Billiton (ASX: BHP) boss Marius Kloppers has suggested that lease conditions for the Browse LNG project were not ideal. WA premier Colin Barnett said he would try to force the partners in the Browse project, including Woodside Petroleum (ASX: WPL), BHP and Shell, to develop the LNG plant on land, at James Price Point in WA.

It is understood that some of the partners are keen on building a floating LNG plant, although BHP has said that it wouldn’t support it. Woodside, as the operator of the project, is due to report back on the economic viability of using James Price Point for the plant in June next year, but it is expected to be around $15 billion more expensive than piping the gas to existing LNG facilities.

The lease conditions don’t allow the partners in the project to investigate any other sites.

The WA government is keen to see the plant built at James Price Point, to ensure that the state will benefit from some of the economic benefits. It could also encourage other gas fields to be developed off the coast. The Premier also questioned the safety of floating LNG plants – which Shell is planning on using for the Prelude gas field.

The Browse partners also face environmental protests over the James Price Point plan, with environmentalists arguing the site is important both on and offshore for native flora and fauna, as well as having indigenous significance.

LNG plants are notoriously expensive, with Browse expected to cost more than $30 billion. Investment bank Citi suggested earlier this year that using James Price Point could see project costs blow out to $45 billion. We’ve already seen other LNG project’s costs blow out, with Santos Limited (ASX: STO) and Oil Search Limited’s (ASX: OSH) Papua New Guinea LNG project rising by US$3.3 billion to US$19 billion. Chevron is also reviewing its US$43 billion Gorgon project because of rising costs.

The Foolish bottom line

The extreme high cost of developing new projects in Australia has been raised as an issue by several resources and energy companies recently. We could see the Browse LNG project put on hold indefinitely, but the most likely scenario is that the project partners will ask the WA government to consider other options, and not just James Price Point.

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Motley Fool writer/analyst Mike King owns shares in BHP and Woodside. The Motley Fool’s purpose is to help the world invest, better. Take Stock is The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Click here now to request your free subscription, whilst it’s still available. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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