LNG 18 – The Transformation of Gas
Peter Coleman, CEO and Managing Director
Woodside Energy Ltd.
Perth Convention Centre
12 April 2016
Speech prepared for delivery
Premier Barnett, distinguished guests, ladies and gentlemen, it’s a pleasure to join you here today.
In keeping with the panel session theme of ‘the transformation of gas’, today I want to focus on the
idea of how the LNG industry must learn from its past in order to guarantee its future. I’m calling
this ‘back to the future’. And I’m going to set out for you why I think we need to go ‘back to the
future’ to ensure our industry’s long-term sustainability.
Let me start with what the commentators are saying about our future, your future.
We know that natural gas is essentially a growth story. Of all the fossil fuels, it is expected to see
the largest growth in the coming years – rising across all sectors: power, industry, residential,
commercial and transport. But we know that natural gas also faces competition – and new
complementarities – with renewables, who are tipped to see the fastest growth in the energy mix,
albeit from a low base.
And just how good the natural gas growth story can be, I think, will depend on our ability to learn
from our past.
Let’s start with project development.
Imagine, for a minute, that you’re flying over the north-west of Australia, over the Woodsideoperated North West Shelf Project. If you haven’t visited before, it’s an impressive sight. It’s been
called ‘one of the world’s premier oil and gas developments’, ‘bold’ and ‘ambitious’.
Onshore there are five LNG processing trains and two domestic gas trains. Offshore, there are
three gas platforms and an FPSO.
It’s easy to forget that this project has in fact been a staged, measured process over many
decades, with successive developments, and shared investments by joint venturers, customers
and governments. It didn’t spring up overnight.
The first phase of the development – the domestic gas phase – began in the early 1980s. It
involved the construction of the North Rankin A platform and a $2.5 billion investment by the joint
venture.
At the same time, the State Government, under the visionary leadership of Sir Charles Court,
invested $1 billion in a pipeline to carry gas from the north-west. The Government’s electricity arm
committed to a take-or-pay domestic gas contract over 20 years. The pipeline infrastructure was
later sold to generate significant revenue for the State.
The next phase for the project was the LNG phase, starting in in 1985. Following negotiation of
long-term LNG contracts with eight Japanese buyers, we added two LNG trains. Then a third in
1992, alongside another offshore gas platform, a fourth train in 2004 and a fifth in 2008.
12 April 2016
LNG 18
1
I think we can learn a lot from this history of phased development.
As I said at the outset, I’m making the call here today for us to learn from our past.
Our investors rightly demand appropriate risk management and financial discipline. We don’t need
to build the latest long-range passenger aircraft or the spaceships that take us to Mars, let’s leave
that to others. We are in the oil and gas industry and need to stay grounded.
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.
I expect that 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.
The North West Shelf example also reminds us of the importance of timing our investments,
investing at an appropriate point in the commodities cycle, to ensure we’re creating future
value. We owe this to our co-investors, our shareholders and especially to our customers.
This is a disciplined approach to growth.
At Woodside, we’re using this current low point in the commodities cycle to drive home our
technology advantage. This means we’re 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.
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.
Phasing and timing developments, I think, is a key lesson from our past.
But we also need to appreciate the changing face of the future, particularly the dynamics at
work in the LNG market.
For a start, we are seeing increasing liquidity in the LNG market, with the pure spot and
short-term market estimated at 20 per cent 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 t o
oversupply issues and in turn suppressed new investment.
It’s worth pointing out here of course that LNG has a different profile to other commod ities
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.
2
Many of the emerging customers want choice in terms of product. They want to see portfolio
flexibility and a range of supply sources.
Of course, those traditional customers who want to make a strategic commitment to a longterm, reliable energy supply will continue to invest heavily in our LNG projects. This is a
sensible approach.
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.
So, if I can sum up today, 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. They need to be phased, and smarter, not always bigger.
We also need to understand our customers, and their future changing requirements, and be
innovative and flexible in response.
If we can do all this, then we can ensure that LNG can grow to its full potential in the world’s future
energy mix.
Thank you.
3