Woodside’s CEO Peter Coleman delivered a speech at the METI LNG producer-consumer conference addressing problems raising questions about sufficient future LNG supply.
One of the problems according to Coleman is the deterioration of oil and gas industry’s financial performance.
“Oil and gas companies’ returns on average capital employed today are actually lower than they were in 2001,” said Coleman.
This period saw $400 billion in value stripped from the industry, and the situation is getting worse with companies facing rising costs that have quadrupled over the last 14 years.
The second issue Coleman mentioned are the risks to developing LNG projects.
“All LNG projects present risks across the design, execution, and operation phases. Most of these risks – including capex, labour costs and regulatory risks – impact on project returns and are borne almost exclusively by LNG suppliers. However, buyers can also bear the burden of “surface risks”, which refer to above ground political and security risks, if situations are prolonged. These are force majeure events, where buyers take responsibility for sourcing replacement volumes,” he said.
He believes that even the supplies from the U.S., that Asian customers are looking to after 2020, will not be enough to meed demand. He estimated that by 2030, 250 million tonnes per annum of new supply will be needed.
In order to avoid the supply shortfall, that might happen as early as 2020-2021 if new FIDs are not reached soon, Coleman sees the solution in partnerships between buyers and suppliers of LNG.
He believes clear price signal is needed before moving forward and takin final investment decisions.
“We can solve our problem if we work together. 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,” concluded Coleman.
LNG World News Staff; Image: Woodside