Woodside has increased the cost of its Scarborough development by $US1 billion after upping the size of the processing capacity at its Pluto gas facility.

The gas heavyweight now expects to spend $US11 billion after raising the capacity of its planned second train, or processing plant, at the Pluto liquefied natural gas facility in northwestern Australia to between 4.5 million tonnes and 5 million tonnes a year, up from between 2 million tonnes and 3.3 million tonnes a year.

The increased processing capacity has pushed up the cost of developing the Scarborough project, which contains 7.3 trillion cubic feet of gas, to $US11 billion compared to a previous estimate of between $US8.5 billion and $US9.7 billion.

The increased capacity comes as chief executive Peter Coleman talked up the strong demand for LNG. Global LNG demand is expected to grow at a compound annual rate of 4 per cent to 2035. He said that demand and supply would come into balance earlier than expected, targeting a more balanced market by 2020-2021 compared to industry estimates of around 2025.

“The market will tighten significantly, especially in the second half of the year,” Mr Coleman told an investor briefing in Sydney.

He added there is growing demand from a broader range of Asia’s energy hungry economies. “It’s not just a China story,” Mr Coleman said at an investor briefing in Sydney on Wednesday.

LNG prices have rebounded thanks to growing demand, with prices exceeding $US9 per British Thermal Units, up from around $US5 a BTU at this time last year.

The push to develop Scarborough comes amid heightened corporate interest in Australian gas assets.

South Australian-based Santos rejected a $14.4 billion bid from Harbour Energy on Tuesday night, citing concerns with its “highly leveraged private equity-backed structure” and saying the $6.95 a share offer did not “represent a full value of the company”. Beach Petroleum last year doubled its production and trebled its reserves after paying $1.59 billion for Lattice Energy, the conventional oil and gas business owned by Origin Energy.

Woodside signalled its ambitions to be a bigger player in the LNG market after raising $2.5 billion in mid-February to fund the acquisition of Exxon Mobil’s 50 per cent stake in Scarborough and the first stage development of the SNE project in waters off Senegal. Woodside controls 75 per cent of the Scarborough project.

The renounceable rights offer of one new share for every nine held was pitched at $27 a share.

Both Woodside and partner BHP Billiton are open to selling a 10 per cent stake in Scarborough to a foundation LNG buyer.

The Scarborough acquisition was completed in late March.

Woodside shares are up 20 per cent from their February lows.

Extracted from Financial Review.