Woodside Happily Keeping the LNG Faith

It is probably not ’new’ news but Woodside Energy Group remains a strong believer in the buoyant outlook for liquefied natural gas (LNG), forecasting prices to stay high for a few years more as the market adjusts to supply disruptions caused by Russia’s invasion of Ukraine and the subsequent western sanctions.

Woodside CEO, Meg O’Neill told an industry conference in South Korea this week that, ”With the invasion, we are seeing the world try to move away from Russian hydrocarbons and that means that demand for LNG from places like Australia is up,”

“We do expect … prices to remain elevated for the next year, perhaps next few years as the world tries to rebalance gas in supply and demand,” she said on the sidelines of the World Gas Conference

In comments to Reuters, she pointed out that the global LNG market was already tight before the invasion because of underinvestment in the past five years.

That underinvestment came from shareholder pressure on the companies to cut debt and maximise cash flows and returns to shareholders as world prices slid from their previous highs in early to mid 2014.

Prices took another hit when the pandemic slashed global demand in the first half of 2020 (prices for oil fell to negative levels in April of that year) while LNG prices dipped to less than $US5 a MBTUs (Million British Thermal Units, a measure of energy contained in a specified amount of gas).

Prices after the Russian invasion soared to more than $US50 a MBTUs and remained above $US40 for a while. They have since retreated to around $US20. But futures prices show that they are around $US28 next January  in the Japan-Korea markets in northern Asia.

Now demand has been disrupted by rising inflation, slowing growth and the impact of the Russian invasion which has also hit supply, especially to Europe.

Producers are under increasing pressure to lift investment and supply – but that is taking time, as Ms O’Neill explained.

“We took an investment decision last year on our Scarborough project, but those volumes aren’t going to come into the market until 2026 so there is a period that I think things will continue to be tight.”

Woodside owns 100% of the Scarborough project following its merger with BHP Group’s petroleum arm. O’Neill said last week that Woodside has received strong interest from companies for a stake in the project.

Too boost its overall supply portfolio globally to meet the rising LNG demand, Woodside is keen to grow its position in the United States, O’Neill said.

Earlier this year, Woodside signed an agreement with Commonwealth LNG to secure 2 million tonnes a year (mtpa) of LNG supply from Commonwealth’s proposed liquefaction plant in Louisiana. The company already has a 20-year deal with Cheniere for supply from its Corpus Christi, Texas, plant.

“We are interested in additional U.S. offtake, one of the things we’ve realised and we’ve seen over the last 10 years is the LNG industry has grown tremendously in the Atlantic basin,” O’Neil said.

However, she said Woodside will exit the Kitimat LNG project on Canada’s west coast, though it will keep its stake in the Liard Basin gas resource in Western Canada, she said.

“It’s a very big gas resource and we are optimistic that we may be able to find a way to commercialize that either as a gas development or perhaps feeding into an ammonia development,” O’Neill told Reuters.

Following the BHP merger, the company is evaluating its exposure to oil and gas prices as it picks up more oil production, O’Neill said.

“We’ve got an opportunity to really design what kind of revenue risk we want to take,” she said.

She said that in 2022, Woodside expects to sell up to 25% of its LNG using gas benchmarks such as the Japan-Korea Marker (JKM) in Asia, the Netherlands’ TTF price for Europe, and the UK’s National Balancing Point, while the rest is sold on long-term contracts linked to global oil prices.

Woodside Energy shares eased 0.2% to $29.10.

About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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