Faced with declining oil and gas prices – and forecasts they could remain low for some time – Woodside Petroleum is seeking to maximise cash from existing operations as it pursues a range of potential low-cost expansion options.
“In the near term, we expect to generate increasing cash flow and returns from our existing business and committed projects, and we see further upside potential from lower capital intensity and quicker to market opportunities,” chief executive Peter Coleman told analysts Tuesday.
Any expansion of capacity will hinge on rising demand globally for gas and an anticipated supply shortfall. The company is looking to new sources of demand, such as Pakistan, which it believes could emerge as a top-five buyer of liquefied natural gas globally within the next five years or so.
“Woodside is well positioned to capitalise on an expected increase in demand from emerging Asian markets,” Mr Coleman said.
Between 2017 and 2020, gas output will rise around 15 per cent, he said, with the start up of the large Wheatstone project and the Greater Enfield project. Beyond 2020 expansion of its Pluto project and possible output from an oil project off Senegal, are likely, he said.
Woodside has admitted that seeking to launch large new projects in the present market was “challenging”, which was why it is focused on capturing “new value from low-cost extensions or expansions to existing projects developments”, he said.
“Recent contracts have been signed at lower prices than previously, in line with market conditions,” he said.
A number of buyers globally, most notably Japan, have baulked at continuing to pay a premium price for gas imports, as other buyers have turned from long-term contracts to buying for shorter periods as the spot market for gas has emerged.
Additionally, in recent months, a “buyers club” the largest liquefied natural gas importers – all Asian – have teamed up to secure more flexible supply contracts. Korea Gas Corp (KOGAS), Japan’s JERA and China National Offshore Oil Corp (CNOOC) have all agreed to exchange information and cooperate in joint gas purchases. JERA is half owned by Tokyo Electric and Chubu Electric, two large Japanese energy utilities. Between them, this group absorbs a third of global LNG production.
Mr Coleman conceded that the growing impact of trading in the spot market had forced producers to accept lower prices for some shipments, although the trader took the credit risk for the transaction, while at the same time opening up new markets, such as Egypt.
“We’re not concerned about it, but we’re watching,” he said. “It also means prices will remain low [on those sales] but it will develop new markets.”
The West Australian gas producer is also hoping to develop a range of smaller domestic markets as mine and truck operators in the country’s north west switch to using gas from diesel, along with converting its own shipping fleet, which will help extend the use of gas into new markets.
When discussing gas field developments Woodside has on its horizon, there was little mention of the giant Sunrise field, straddling the Australia and East Timor borders, which has been delayed pending resolution of a lengthy boundary dispute between the two countries.
“It will happen one day,” Mr Coleman said of the potential development of this resource. “There is a lot of work going on in the background … particularly around border negotiations.”