The national and state governments have given the Browse joint venture partners four months to decide on a development path for the project and three years to make a final investment decision as a condition of a lease renewal arrangement.
The national and state governments have given the Browse joint venture partners four months to decide on a development path for the project and three years to make a final investment decision as a condition of a lease renewal agreement.
Federal resources minister Martin Ferguson today said he would renew seven Browse retention leases held by the Browse partners on condition that a "development theme" for the project is made within 120 days.
The Browse partners are Woodside Petroleum, BHP Billiton, BP, Chevron and Shell.
"We encourage the Joint Ventures to work together to achieve the earliest possible commercialisation of the Browse resources and we look forward to seeing this significant resource being developed for the benefit of both the Browse Joint Venture and the Australian community, in particular Western Australians and regional Indigenous communities," WA Resources Minister Norman Moore said in a statement.
In a further bombshell, Mr Ferguson has also refused to renew a separate retention permit over the Dixon field at the North West Shelf, giving the six Shelf partners just 12 months to apply for a production licence at the field, and then five years to start production.
Both moves reflect a marked strengthening of the "use it or lose it" provisions of retention lease regulations, reflecting increasing market and political pressure to commercialise previously shelved gas reserves.
Retention leases are granted where a permit holder is able to demonstrate that it would be uneconomic to develop a discovered resource in prevailing conditions. However, they must be renewed every five years subject to the holder verifying that development remains subeconomic.
Domestic gas buyers have been arguing for years that big energy companies use retention leases to warehouse gas reserves that could be developed to supply the domestic market with an eye to ultimately targeting the more lucrative LNG market.
The Browse project's massive gas reserves, estimated at over 15 trillion cubic feet of gas, have been held under such retention leases since their discovery in the early 1970s.
Woodside has already announced it prefers to feed gas from the Browse project through a planned shared-user liquefied natural gas processing hub at James Price Point near Broome.
The other partners have yet to agree on a site, however Woodside chief executive Don Voelte said last week one of the partners was close to backing the company on the James Price Point location.
Mr Voelte also said that Woodside hoped to achieve a final investment decision for Browse in 2011.
Another option for the Browse project was to feed the gas to Woodside's existing North West Shelf facilities.
Woodside maintains that this "backfill" option will unnecessarily slow the ramp up of production at Browse by years and is economically far inferior to its proposed standalone development utilising James Price Point.
Shell and Chevron argue that insufficient work has been yet done to show that standalone development is the best option. However, both companies have relatively minor equity stakes in the project and are pursuing competing LNG developments elsewhere in the region.
Both are partners in the $43 billion Gorgon venture, while Chevron is also working on its $20 billion Wheatstone LNG development at Onslow, and Shell is planning a $5 billion floating LNG development at Prelude in the Browse Basin.
A spokesman for the DomGas Alliance declined to comment specifically on today's developments but said the alliance's general view was that retention leases should always "in the first instance, be assessed on whether they can supply the domestic market on a commercial basis".
Similarly, WA gas consumers had long been concerned that retention leases could be used to park resources for increasingly ambitious LNG projects despite the state's "worsening domestic gas shortage".
Chevron declined to comment on Mr Ferguson's ruling, instead referring all queries to Woodside as operator of both projects.
Comment is being sought from Woodside and Shell.
Though Dixon is a relatively minor field believed to contain only about 130 billion cubic feet of gas, it does form part of the proposed Greater Western Flank development at the Shelf.
The development is intended to extract around 3 trillion cubic feet of gas from 14 separate fields around the existing Goodwyn platform, including Dixon. Reserves were first booked for the Dixon field in 1995.
Woodside is aiming to start front end engineering and design for the $1 billion-plus development next year.
Woodside is a one-sixth owner and operator of the North West Shelf project, while Shell, Chevron, BP, BHP and Japan's MIMI all own one sixth.
