Oil and gas producer Woodside Petroleum (ASX: WPL) has its eyes on a project off the coast of Africa, that could be five times bigger than the North West Shelf project.
Chief executive Peter Coleman has previously ruled out investing in emerging east African oil and gas projects due to high costs, but this week he highlighted the potential of Mozambique for liquefied natural gas exports.
At a business breakfast in Perth, Mr Coleman said recent discoveries in Mozambique had shown an area of gas reserves totalling around 100 trillion cubic feet, or "Five North West Shelfs".
Mr Coleman predicts energy producers will soon have to change the way they market and transport LNG. "That's not just due to shale gas, that's due to a whole new number of new supply sources coming in," he said. "Whether it's shale gas in the US, whether it's conventional or unconventional out of Canada, whether it's Mozambique, whether it's Israel or whether it's anywhere else, the industry is fundamentally changing."
Woodside recently put its controversial Browse LNG project on hold, after deciding that an onshore processing plant would not stack up economically. The company also faces issues with its Sunrise LNG project in the Timor Sea, with the government of East Timor insisting on an onshore LNG plant. Woodside has suggested that it prefers a floating LNG plant for Sunrise, and also indicated it was the preferred option to develop its Browse gas.
Onshore LNG projects are hugely expensive, with Chevron's Gorgon project costing more than US$50 billion. Origin Energy's (ASX: ORG) Australia Pacific LNG Project is estimated to cost US$24.7 billion, while Santos Limited's (ASX: STO) Gladstone LNG has a price of US$18.5 billion.
With both of its long-term LNG projects in limbo, Woodside has taken a 30% stake in the Leviathan offshore gas field in Israel, but has no significant short to medium-term growth options. That may be why Woodside is looking at Africa again.
Foolish takeaway
Woodside may regret its decision to pay shareholders a special dividend of US63 cents a share. Without that cash, the company may be forced to raise equity or debt to invest in short to medium opportunities.
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The Motley Fool's purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, 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. This article contains general investment advice only (under AFSL 400691). Motley Fool writer/analyst Mike King owns shares in Woodside and Origin.
