Woodside CEO: future LNG developments should be phased, smaller

Woodside’s CEO Peter Coleman said on Tuesday that future LNG developments need to be phased, more innovative, and potentially smaller in order for the LNG industry to grow to its full potential in the world’s future energy mix.

I think we need to be learning from our past, understanding the LNG commodity cycle, our investment cycles, the concept of risk and reward when it comes to our developments,” Coleman told the audience at the LNG18 conference currently being held in Perth.

We also need to understand our customers, and their future changing requirements, and be innovative and flexible in response,” Coleman said.

In today’s low oil price environment, a “sensible approach is to phase a development – take staged decisions and then build out.”

Too often we’ve tried to do too much, driven by an insatiable desire to grow,” Coleman said.

According to Coleman, the LNG projects of the future will be smarter, greener but not necessarily bigger.

Many of them could well be a series of phased projects, with staged developments. I am not ruling out one off projects worth many billions of dollars but they will certainly need to lead to robust returns for investors – returns that inevitably need to withstand the down cycle of our commodity business,” he said.

At Woodside, “we’re using this current low point in the commodities cycle to drive home our technology advantage“.

This means that Woodside is planning to drive down costs over the next two to three years with “step-changing” technological advances.

We’re aiming to position ourselves for final investment decisions so that we can provide LNG supply in the early to mid-2020s when the market will be demanding it,” Coleman said.

By technological advances, “I mean concepts like the next generation of modular construction for LNG developments, nearshore and floating LNG, and using data science to enhance reliability of our assets”.

We’ll be driving home our technology advantage and aiming to have developments decision-ready for the next cycle,” he said.

Changing face of the future

According to Coleman, phasing and timing developments is a key lesson from the past.

But we also need to appreciate the changing face of the future, particularly the dynamics at work in the LNG market,” he said.

For a start, we are seeing increasing liquidity in the LNG market, with the pure spot and short-term market estimated at 20 percent globally. Increasing liquidity poses real challenges, especially for sellers. We’ve already seen it with other commodities, where the shift to a more liquid market has created uncertainty, led to oversupply issues and in turn suppressed new investment,” Coleman said.

He pointed out that LNG has a different profile to other commodities because it has very high capex and can’t easily be stored. This profile exacerbates the sellers’ challenges of moving to a more liquid market.

Our buyers’ profiles are evolving too. Seven countries made up 90 per cent of LNG demand in 2005, but this will expand to 25 countries by 2020. South-East Asia is one of the key growth areas,” Coleman said.

Many of the emerging customers want choice in terms of product, Coleman said, adding that they want to see portfolio flexibility and a range of supply sources.

Of course, those traditional customers who want to want to make a strategic commitment to a long-term, reliable energy supply will continue to invest heavily in our LNG projects. This is a sensible approach,” he said.

Nonetheless, LNG sellers need to adapt to this changing market. This is why Woodside is evolving its marketing business. We know that we need to be innovative and flexible in the way we meet our customers’ needs. This is the future,” Coleman concluded.

 

LNG World News Staff