Condition for Greenfield LNG Development Still Not Favourable: Woodside

Woodside CEO Peter Coleman April 4 said current conditions are not favourable for taking final investment decisions (FID) for major investment in greenfield LNG projects owing to factors such as geopolitical risk, policies on climate change and taxation, contractual risk and rising funding costs.

“The upshot is that, globally, only very small volumes have gone to FID in 2016, and 2017 looks set to be another challenging year for the sanction of new LNG projects,” Coleman said while speaking at Gastech Japan. “There is an abundance of gas globally and it is understandable buyers may not want to look beyond the short term.”

Woodside CEO and managing director Peter Coleman (Credit: Woodside)

Buyer engagement

Coleman stressed that it is time now for buyers to engage again, in recognition that this time of abundance will not last. “Those who move first will get access to the most promising projects, offering the most reliable supplies,” he said adding that changes now occurring in the market mean there will be competition for those supplies.

Greater availability of gas has created demand in newer markets, mainly in emerging countries, which now account 5% of global LNG demand and that’s expected to rise to 27% by 2025, Coleman stated. He anticipates that the next wave of demand growth will come from the use of LNG as a transport fuel, in ships and on road and rail.

LNG market more liquid

As buyers and sellers move towards greater engagement, the LNG market is becoming more liquid and transparent, and there is room to negotiate flexibility in new contracts. In 2015, only about 40% of LNG contracts had fixed destination terms, down from 60% for contracts signed up to the year 2014, Coleman informed.

“The move to a more open and fluid market is a welcome long-term development but presents a transitional challenge: how to justify the capital-intensive construction of new supply that will be needed. We need to have an open conversation about the conditions that caused the current supply overhang in the market. Developers have responded to market needs by reducing cost of supply. We now need buyers to do their part and create new markets. Sellers, buyers and governments each have a role to play in managing uncertainty to enable the continued sustainable growth of the market,” Coleman concluded.

Shardul Sharma