Future of LNG Supply Depends on Buyer-Supplier Partnership
The solution to ensuring sufficient future LNG supply lies in partnership between LNG buyers and suppliers, according to Peter Coleman, CEO and Managing Director Woodside Energy Ltd.
According to Coleman, despite media suggestions of an abundant supply of LNG into the Asian market, it can be seen that the conditions build for a supply crunch.
“Our industry’s financial performance is deteriorating. We are operating in a capital constrained world, where oil prices and free cash flow are falling. At the same time, we have new risks emerging. And this is happening when buyers and suppliers should actually be preparing to underpin Final Investment Decisions in new supply,” Coleman said while speaking about the LNG Supply Outlook and Actions by Producers at METI LNG producer-consumer conference today.
“We actually need to make Final Investment Decisions on new LNG projects now to ensure that we don’t have a shortfall as early as 2020-2021. “
As explained, after 2020, many customers in Asia are looking to US LNG as a solution. However, US LNG will not be enough to meet demand in terms of volume and risk balancing.
“We estimate that by 2030, more than 250 million tonnes per annum of new supply will be needed. The United States could meet about 30 per cent of this figure. New risks from this new source of supply include commodity price risk and volatility, regulatory risk, and transportation risk, including potential capacity limits on the Panama Canal. Asia will need other sources of supply to meet our needs, ” he added.
Coleman pointed out that the requirement for new LNG supply project investment increases very quickly, noting that it should be decided on investments for over 50 million tonnes per annum of new projects in the next few years to avoid a shortfall in 2023.
“In all, an additional 15 million tonnes per annum of Final Investment Decisions are needed from now on to meet 2030 demand. Delays or the deferment of project FIDs will lead us to a supply crunch.”
The solution, according to Coleman, lies in the partnership between buyers and suppliers of LNG “so as to support new, reliable supply coming into the market.”
In order for this to proceed, Coleman said that a clear price signal is needed before moving forward and taking Final Investment Decisions.
“This is a strategic commitment. By holding out for a cheaper price, customers are potentially exacerbating project FID delays, and may unwittingly help bring on a supply crunch.
Only long-term contracts with robust pricing that will underpin investment decisions will ensure our projects can go ahead and meet supply needs into the future.”
Source: Woodside; Image: gov.au