Shell the latest oil major to back off as it delays decision on Crux gas project

Royal Dutch Shell said on Tuesday that its Australian unit and joint venture partners have decided to delay a final investment decision on the Crux gas project in offshore Australia that was initially planned for 2020.

The Crux project is one of several globally that have been delayed in recent months after the collapse in energy prices.

Liquefied natural gas (LNG) demand had been hitting record highs until recently thanks to appetite from China and India as they diversify away from dirtier coal-power generation, but the crash in oil and gas prices has caused major LNG exporters to put off gigantic new facilities or expansions of existing projects.

Shell and its joint venture partners decided to delay the final investment decision “due to the global economic downturn, including the sharp drop in oil price, declining markets and uncertainties with regard to the Covid-19 pandemic”, a spokesperson said in a statement e-mailed to Reuters, adding that Shell remains committed to developing Crux.

“This is consistent with Shell’s global approach of actively managing all operational and financial levers, including reducing capital spend,” the statement said.

In late March, Shell said that it had pulled out of a major US LNG export plant in Louisiana, citing the crash in energy prices.

Crux, owned by Shell, Osaka Gas and a unit of Seven Group Holdings, is one of several gas fields that have been awaiting development off northwestern Australia.

The project will be developed to supply backfill gas to the Prelude floating LNG facility off northwest Australia. Cargo liftings from Shell’s Prelude facility, which is the world’s largest floating LNG facility, have been suspended since February following an electrical trip.

THIS IS CONSISTENT WITH SHELL’S GLOBAL APPROACH OF ACTIVELY MANAGING ALL OPERATIONAL AND FINANCIAL LEVERS, INCLUDING REDUCING CAPITAL SPEND

Making a final investment decision on capital-intensive projects such as LNG will be challenging this year, Gavin Thompson, vice-chair of energy at Wood Mackenzie’s energy division, said in March.

“If you look at the upstream industry, preserving cash on balance sheet is absolute priority,” he said. Taking a final investment decision on “any new projects that are very capital-intensive right now — shareholders don’t want to do that.”