Woodside’s $30b gas project could struggle to find financial backers

Australia's biggest untapped gas resource would involve building one of the world's longest subsea pipelines and would be among the more expensive projects ever developed in this country.

The $30 billion Browse gas project, off Western Australia's Kimberley coast, lends itself to superlatives.

But for all its scale and ambition, some critics say Browse could face a basic problem.

They suggest its backers, led by Australian oil and gas giant Woodside, may struggle to borrow the huge sums of money needed to build it.

"I think it's really important again to stress how high the project cost has become," said Elisa Leys, the acting Tokyo office director of advocacy group Solutions for Climate.

"As the project cost continues to increase, we just see that the pool of financing is drying up."

Amid a renewed push by Woodside and its partners, which include BP and Japanese firms Mitsui and Mitsubishi, Browse is firmly back on Australia's development radar.

Last year, the federal government paved the way for the project by giving the green light to a 50-year extension of the North West Shelf, an enormous gas plant that would process Browse gas.

Western Australia's Premier Roger Cook has described a "Browse-sized hole" in the state's gas supplies from next decade without it, despite most of its gas being earmarked for export.

Just last week, the Australian arm of the United Arab Emirates' oil and gas behemoth placed a $2.1 billion bet on Browse when it bought Shell's stake in the North West Shelf.

No money for fossil fuel projects

But Ms Leys said none of this would matter if banks and other financiers were unable or unwilling to lend the project or its proponents the necessary funding.

"A really fair question here is to see if the financing pool really fully dries up; companies like Woodside will have to start reaching into their own pockets," she said.

The heat on oil and gas companies from lenders was turned up this week after ANZ revealed it would not directly finance "new or expanded upstream gas projects".

In its annual report, the bank said these projects included "LNG liquefaction plants, floating production storage and dedicated offloading infrastructure".

It also included "new midstream infrastructure dedicated solely to new upstream gas projects … such as new transmission pipelines".

The move adds to pressure from other Big Four Australian banks, including the biggest of them all: Commonwealth.

Under its environment and social lending policy, CBA said it would "provide no project finance to new or expanded oil and/or gas extraction" developments.

Meanwhile, NAB said it would not "directly" lend money to developments "where these assets are dedicated solely to greenfield oil and gas extraction projects".

Gas project with deep pockets

Saul Kavonic, an oil and gas analyst at MST Financial, said it was almost a moot point whether Australian banks were willing to lend to a project such as Browse.

Mr Kavonic said every participant in the project was a serious player on the global stage and could access money from much deeper overseas funding pools.

For starters, he said Japan in particular was willing to lend to oil and gas projects in which its homegrown champions were investing.

Meanwhile, he said the entry of the UAE's Abu Dhabi National Oil Company (ADNOC) on the scene — through its purchase of Shell's 16.7 per cent share of the North West Shelf — was a big deal in Australia.

He said ADNOC was "bigger than a bank" and keen to invest in Australia's oil and gas industry, including in Browse.

"But at the end of the day, all the companies involved in Browse are major international players with access to debt markets globally, including government-backed debt facilities from trading partners and in the United States.

"And Australian bank debt supply is not terribly important."

Woodside said Browse was undergoing its "concept definition phase" and no decisions had been made on how the project might be financed.

A spokesman said Woodside did not yet have a preferred funding model but stressed an investment would have to be disciplined and attractive to shareholders.

The spokesman also noted that Browse would need to secure regulatory approvals from the state and federal governments.

Hormuz shock revives Browse

According to Mr Kavonic, Browse had been given fresh impetus by the US-Israeli war in Iran, which had choked a fifth of the world's LNG supply and sent prices rocketing in Europe and Asia.

He said the loss of those supplies had been compounded by growing doubts about the reliability of other sources, whether they were from Russia or Africa or even the US.

As a result, Mr Kavonic said Asian buyers, especially those in Japan, were desperate for supplies from reliable trading partners.

"And that's Australia and only Australia," he said.

The upshot, he said, was that Browse was now, for the first time, potentially viable.

"If the Iran war hadn't happened, I don't think Browse would be getting anywhere near the level of traction that it now has," he said.

Billion-tonnes of carbon

Ms Leys was far more skeptical.

She said her group had looked at a list of 42 banks that provided money to the Browse proponents over the past five years.

They found that 13 of those banks would be "unable to provide project finance" to the development, while three would also have difficulty lending to Woodside itself.

With a diminishing list of banks that could provide finance, Ms Leys said Browse would ultimately face higher borrowing costs that would further jeopardise a project already considered marginal.

"There is something to be said about Browse being significantly more expensive than some other LNG developments," Ms Leys said.

Beyond its remoteness and complicated ownership, Ms Leys said Browse had another potentially fatal flaw.

She said it was extremely high in carbon, which made up about 12 per cent of the gas in the three fields.

"There's a 1.6 billion tonnes of CO2 emission cost to this project that is not accounted for."