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Has Woodside hit its price point on the environment? (The Punch)

In the iconic Kimberley region of West Australia one of Australia’s biggest recent environmental battlegrounds has emerged in the red cliffs and turquoise waters of James Price Point, about 20 km north of Broome. This is a battle that might ultimately be won in the investor board rooms rather than on the front lines of blockades, says ACF's economic adviser Simon O'Connor

The Browse Basin gas hub development has stoked up so much opposition on so many fronts that many investors are now asking if the project is still economically viable, or if in fact Woodside’s ‘social licence’ to proceed has disappeared in the red dust that graces the Kimberley coastline.

Australian business is all too familiar with the impact strident community opposition can have on controversial major projects, yet some large corporations and investors continue to discount the importance of maintaining their social licence and protecting the environment.

Such a scenario is playing out right now in the Kimberley where, despite a National Heritage listing in August that declared an area almost the size of Victoria to be worthy of protection, Woodside continues to push its $30+ billion gas project at James Price Point in the face of escalating barriers and community opposition.

Time and time again corporate Australia thinks it can push against the tide of public concern to drive projects through. Yet time and time again these same proponents come up against insurmountable discontent that ultimately blocks projects and can result in massive losses to shareholder value.

Back in 2000 mining giant Rio Tinto made a momentous decision to suspend the development of the Jabiluka uranium deposit, which lies within Kakadu National Park. Decades of opposition to mining at Jabiluka culminated in five years of large scale campaigning led by the local traditional owners, the Mirarr people, and supported by a well organised environment movement.

The social licence to mine at Jabiluka was irretrievably lost. Rio took too long to realise this, costing it millions in the eventual rehabilitation of the site, which included refilling many kilometres of mine shafts. There are many such examples in Australian corporate history, most recently the story of the Gunns Ltd pulp mill being another cautionary tale of shareholder value destruction.

Those watching the development of the Browse Basin gas hub by Woodside and partners Shell, BP, Chevron and BHP Billiton may see a pattern emerging remarkably similar to big controversial projects of the past. Concern about this $30+ billion LNG development has expanded in recent months from a local issue to one that has national attention.

Since July, a protest camp has been set up at James Price Point, often preventing access to the site for Woodside’s contractors. A number of protesters have been arrested. In the town of Broome, nearly half the population of 15,000 turned out to protest against the gas development, fearing it would turn the laid-back holiday town into just another expensive Pilbara mining town. 

As well as the domestic environmental concerns about this development, it would appear too that investors here and overseas are increasingly sceptical of Woodside’s ability to deliver on the project.

Woodside’s production downgrade in December, on the back of slippages in timelines for delivery of its other major project, Pluto, have left many with serious reservations about the company’s ability to deliver the Browse project on time and on budget.

Recent analyst reports have indicated that investors feel the company is under-quoting the budget by as much as 20 per cent.  Alternative sites are now being modelled as economically competitive and, by some estimates, as cheaper options than James Price Point.

An announcement just before Christmas that Woodside would be requesting an extension to make Final Investment Decision by more than six months to the first half of 2013 confirmed what many looking at this project had long suspected — that James Price Point was looking increasingly unviable.

But most significant of all was the announcement last Friday that Woodside will sell down its majority stake in Browse perhaps marking the final nail in the coffin for a gas hub at James Price Point, as Woodside has always been the strongest advocate for this big, expensive and risky development.

Other options suddenly looked far more appropriate for a gas hub. Earlier this month Japanese oil company Inpex got the go-ahead for its Ichthys liquefied natural gas project — setting up Darwin as a potential alternative for a hub to process Browse Basin gas. 

As it stands, there is little chance Woodside will be able to make the economics of James Price Point stack up, let alone defy strong community opposition to the industrialisation of the Kimberley.  Investors understand this. It’s time Woodside and its partners took stock of the situation and gracefully conceded that Browse gas will not be developed at James Price Point.

With every new slippage in the timeline, and every budget blow out, the alternatives become ever more attractive. It is on these grounds that investors should be applying pressure on the company now to stop wasting money in developing a project proposal that clearly isn’t going to see the light of day.

It would be wise for Woodside’s new CEO to take a history lesson on the importance of maintaining a social licence. 

Woodside should re-examine the other options for developing the Browse Basin gas away from the pristine and unique Kimberley region.