Oz Gas Project Delays Hit BP, NWS LNG Supplies

Delays associated with a gas project in Australia’s Perth Basin would affect plans to send gas supplies to backfill Woodside’s North West Shelf (NWS) LNG project and an LNG supply deal with BP.

Nearer-term, world-class LNG exporter Western Australia is already facing potential industrial action at NWS and other LNG export plants in the state.

The Delay

Independent Beach Energy said this week it was targeting first gas at its Waitsia Stage 2 project in the middle of 2024, attributing the delay of up to one year to primary contractor Clough which entered voluntary administration last year. Clough was acquired by Webuild earlier this year and the project is continuing to progress.

A spokesperson with Beach confirmed delays at Waitsia Stage 2 will impact supply of Waitsia feed-gas to NWS and its sales to BP. “However, the NWS processing and LNG sales agreements are both for a five-year period and will remain on-foot,” he said.

The delay has led to cost overruns for the Waitsia Stage 2 project. Beach raised its forecast net capital expenditure to A$450 million-500 million (US$290 million-$322 million), up from previous guidance at A$400 million-450 million and A$350 million-400 million.

Waitsia Stage 2 project, which would have a daily production capacity of 250 terajoules, is a 50:50 joint-venture between Beach and operator Mitsui E&P. The project is ranked as one of the largest onshore gas discoveries in Australia.

Backfill Supply for NWS, LNG Supplies to BP

Waitsia Stage 2 has been earmarked as one of the third-party gas providers for the 16.9 million ton per year NWS project — Australia’s oldest and largest LNG plant — which is facing depleting gas reserves. Woodside, operator of the NWS project, has signed a gas processing agreement with Mitsui E&P and Beach Energy to process gas for an aggregate 7.5 million tons of LNG over five years from the second half of 2023 to end of 2028.

Woodside could not provide a comment on the impact on NWS as it is in a black-out period before the release of its results next week. The operator is nonetheless slated to shut one of five NWS trains for maintenance from Aug. 25 to Sept. 23.

Woodside said previously it may have to shut one of its NWS trains as early as 2024 if it could not find third-party gas supplies.

Woodside and its NWS partners have also signed a nonbinding third-party processing deal with Western Gas for gas supplies from its offshore Equus field, but supplies are slated to start from 2027.

Waitsia Stage 2 delay would also affect Beach's agreement to supply up to 3.75 million tons of LNG to BP over five years. The volumes are slated to be delivered on a f.o.b basis from NWS in which BP is a 16.7% joint-venture partner. Beach is seeking exposure to global LNG prices by pricing its volumes to BP linked to Brent and the Japan Korea Marker.

NWS exports peaked in 2018 at over 17 million tons, according to Kpler, but have struggled to reach that level ever since.

NWS Union Talks

The delay in supplying feedgas to NWS has come at a time when the project is facing risks of production disruptions amid ongoing negotiations with local unions which are demanding better pay and working conditions.

Talks were recently held on Tuesday. A Woodside spokesperson said “positive progress” is being made and both sides have reached in-principle agreement on a number of issues that are key to the workforce. The next meeting has been scheduled for next week.

Risk of industrial action at NWS, as well as Chevron’s Gorgon and Wheatstone projects, has pushed up LNG prices in Asia and Europe.