Energy giant Santos and French partner GDF Suez are considering piping gas after scrapping plans to build a multi-billion dollar floating gas plant off Darwin's coast.
The companies have baulked at the high costs of the proposed Bonaparte project, saying they are considering "other potential development options" for three gas fields 250 kilometres out to sea.
They have cited an insufficient rate of return, risk and capital exposure as reasons for exploring other options to the planned floating LNG facility.
Analysts say the decision shows the companies are considering piping the gas instead of using a relatively small floating structure.
Santos and GDF Suez say they are reviewing piping the gas to Darwin where it could be used in the Darwin LNG project's plant.
"While the partners firmly believe the fields have material value, having been fully appraised, their future development using floating LNG technology, although technically robust as demonstrated during extensive pre front-end engineering and design (FEED) studies, does not currently meet the companies' commercial requirements," Santos said in a statement.
As a result the proposed Bonaparte floating LNG project will not be taken into the FEED phase.
The decision adds to concerns about soaring construction costs threatening $180 billion in investment in future Australian LNG projects.
But Morningstar Resource analyst Mark Taylor said the Bonaparte project was quite small compared to other potential FLNG projects off Western Australia such as Woodside's Browse and Exxon's Scarborough FLNG projects.
"It might be a bridge too far for Santos," Mr Taylor said.
"It's probably only going to be worthwhile doing if something really is stranded and it is a big risk to build FLNG when there are likely to be other options available."
He said FLNG, which could be built offshore, was still attractive given Australia's high cost environment, but those costs were beginning to come down.
"If they're having doubts about it, that suggests it's becoming more attractive to build onshore," he said.
There is already a gas liquefaction plant in Darwin of which Santos is a minority shareholder.
The Bonaparte LNG project incorporates three gas fields including Petrel, Tern and Frigate.
The partners have not put a value on the cost of the project in which GDF Suez would hold 60 per cent and Santos 40 per cent.
Santos shares fell 29 cents to $14.20 at 1348 AEST.
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