LNG prices are set to stay elevated globally amid strong demand and limited supply reflecting the impact of Russia’s invasion of Ukraine as well as a lack of significant fresh investments in the sector, Woodside Energy CEO and Managing Director Meg O’Neill said May 25, reports SP Global.
Demand for LNG
Both Europe and Asia are trying to refill storage before next winter and that is also supporting prices, O’Neill said.
Woodside expects to sell about 20%-25% of its produced LNG on gas price markers in calendar year 2022 with the remainder being under long-term contracts, she said.
Demand had dropped as the pandemic hit with the result being that “many buyers got complacent and thought that the spot market was much deeper than it actually is.”
However, the LNG market is quite tight and with the events that have unfolded in Ukraine, the market is even tighter, she said, adding that buyers are now likely to be more interested in long-term deals than they would have been two years ago as they offer price certainty over the duration of the contract.
The Platts JKM for July was assessed at $23.123/MMBtu May 24, according to data from S&P Global Commodity Insights.
Supply-side fundamentals
“I think one of the very near-term challenges is undersupply. So, there’s been underinvestment in LNG for the last five years and we’re starting to see the consequence of that. So, more investment is required,” O’Neill said.
“We took an investment decision last year on our Scarborough project, but those volumes aren’t going to come into the market until 2026. So, there is a period where I think things will continue to be tight,” she said.
“When we took our FID on Scarborough, we had about 60% of Woodside’s equity share of production sold through either medium or long-term contracts,” she said, adding that the company was continuing discussion with a number of other buyers on Scarborough LNG offtake but nothing concrete had materialized yet.
About Woodside
Woodside is also interested in securing additional LNG offtake from the US, O’Neill said.
Woodside said in January it had inked a head of agreement with Commonwealth LNG to negotiate a sale and purchase agreement for the supply of LNG from the proposed Commonwealth LNG development in Cameron, Louisiana.
The HOA contemplates the purchase by Woodside of 2 mt/year LNG over a span of 20 years, scheduled to begin in second-quarter 2026.
“We think that the pricing they are offering is very competitive,” O’Neill said, adding that “we do see an opportunity to grow our position in the US”.
For its North West Shelf asset, Woodside is trying to bring more gas to the plant, she said, adding that it Greater Western Flank Phase 3 project is being developed in that direction.
The first wells of that project have started already this year ahead of schedule, with the final well expected to start later this year, she said.
“We have also taken up contracts with other gas suppliers to process gas through the plant,” she added.
Separately, the company’s technical team is also evaluating the Browse carbon capture and storage project.
“For Browse to proceed, we need a solution for the CO2 that comes out of the reservoir and that’s going to have to be a CCS solution,” she added.
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Source: SP Global
