Falling oil prices are causing a shake-up in the gas industry. The latest sign of this is Australian energy company Woodside’s indefinite deferral of its huge gas project off northwest Western Australia.
The $30.7 billion project was to convert natural gas extracted from deepwater areas to liquid (LNG) on a floating barge-like structure for export—a world first on a commercial scale. Major oil companies Shell and BP are partners in the joint venture. Some have suggested the solution is for companies to work together to bring down costs.
The project is just the latest victim as companies adapt to lower oil prices. So how else is the sector dealing with the low prices?
Why Have Prices Fallen?
Gas prices are linked to oil prices in their export contracts. Oil prices started their freefall from around $110 a barrel in July 2014 to the current $38 a barrel.
Shell has claimed that the project is not economic at an oil price of less than $50 a barrel.
Essentially, the global oil and gas industry is facing an oil price shock, which is affecting local projects.
The price of oil has fallen as non-Western oil-producing countries (OPEC) seek to re-establish dominance over the United States. The recent U.S. shale oil revolution uses new extraction techniques, so despite its higher costs requiring higher prices, shale oil was looking like it might make the United States self-sufficient in oil for the first time. But the OPEC competitors have flooded the market with oil (thus lowering the price) in a bid to drive U.S. shale oil companies out of business.
