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Browse LNG would cost $80 billion

Oil and gas giant, Woodside Petroleum (ASX: WPL) has for the first time confirmed that its Browse LNG processing plant onshore at James Price Point would have cost more than $80 billion.

Writing in an opinion piece in The West Australian, Woodside’s corporate affairs spokesman Roger Martin revealed the likely capital cost.

“We invested about 4.5 million man hours and had hundreds of Woodsiders who dedicated years trying to come up with a way to make this land-based development commercially viable,” Mr Martin wrote. “When the final number came in at more than $80 billion, it was obvious these efforts were in vain.”

Woodside announced in April this year that it would not go ahead with the James Price Point onshore LNG plant, but at the time did not reveal the estimated cost, with the company declaring that it was not commercially viable.

In August this year, Woodside recommended to its partners in the project, including Shell, BP, PetroChina and Japan Australia LNG, that the Browse gas field be developed using floating LNG (FLNG) technology to commercialise the three Browse gas fields. Shell is pioneering the use of FLNG technology to develop its Prelude gas project, at an estimated cost of around $12 billion.

Current onshore LNG plants are hugely expensive, with Chevron’s Gorgon project estimated to cost US$54 billion, and Chevron remains concerned that further increases are still possible. Santos Limited’s (ASX: STO) Gladstone LNG is expected to cost US$18.5 billion, while Origin Energy’s (ASX: ORG) Australia Pacific LNG has seen costs blowout to $24.7 billion. That is one reason why BHP Billiton (ASX: BHP) is also considering FLNG to develop the Scarborough gas field off Western Australia.

Woodside’s Browse project was estimated to cost around $25 billion in 2009, but costs obviously blew out substantially. The company’s share of the costs, if it had gone ahead, would have been around $25 billion, close to the entire market value of the whole company.

Foolish takeaway

LNG plants are highly complex, expensive projects taking years to go from development to production. Shareholders will be breathing a sigh of relief that Woodside didn’t proceed with James Price Point.

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Motley Fool writer/analyst Mike King owns shares in Santos. You can follow Mike on Twitter @TMFKinga

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