Woodside Petroleum : CEO speech at Australia Japan Business Co-operation Committee 2019

Peter Coleman

CEO and Managing Director

Woodside Energy Ltd.

AJBCC, Osaka

Tuesday, 8th October 2019

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Japan and Australia: Partners in Energy Innovation

It's good to be back here in Japan.

Woodside has in recent months celebrated 30 years of LNG exports to Japan and we value highly our relationships with Japanese customers and partners.

Those relationships date back to the critical Japanese investment in the Woodside-operated North West Shelf Project in the 1980s, when Japanese buyers underpinned the Project by signing long- term gas supply agreements.

Japanese investment and commitment to take supply also underpinned the Woodside-led Pluto LNG Project, which commenced production in 2012.

Woodside's relationship with Tokyo Gas and Kansai Electric, initially fostered through the North West Shelf project, deepened as these companies became our joint venture partners and foundation LNG buyers from Pluto.

Today around 85% of Woodside's contracted LNG is sold to Japan. It's a relationship that has gone from strength to strength.

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Together we built the LNG industry in Australia - an industry which has a vital role to play in global emissions reduction efforts, while extending access to modern energy.

The contribution LNG can make was highlighted recently by the International Energy Agency report that, since 2010, global coal-to-gas switching has avoided 500 million tons of CO2 emissions.

LNG can displace higher emissions fuels in other sectors, including shipping. As a marine fuel, LNG easily complies with the International Maritime Organisation's tighter cap on Sulphur emissions that starts from January 2020.

LNG would also comply with any future constraints that may be imposed on the shipping industry's greenhouse gas emissions.

On the busy trade routes from northern Western Australia to Asia, using LNG instead of heavy fuel oil can reduce CO2 emissions from those ships by as much as a third. Woodside is well-placed to supply those routes and is well-advanced in design options for bunkering vessels.

We don't yet know how much of the marine fuels market LNG will capture after the IMO's new Sulphur rule takes effect.

But this is just one of several factors underpinning strong demand for LNG in the years ahead.

We are now seeing a number of LNG projects around the world progress, ensuring there will be continued availability of supply. That's good news for a country like Japan because diversity of supply is important for security of supply.

Woodside is looking to progress two major projects in Australia that will deliver LNG for decades to come. By using existing facilities, we are able to keep costs down, which is crucial in what has become a very competitive LNG market. We know the demand will be there - from Japan and other customers. We applaud the Japanese government's effort in trying to build out LNG facilities in the Asian region.

In recent years, we have seen growth in new LNG suppliers - and in new markets.

We're already seeing strong interest in securing volumes from our growth projects, Scarborough and Browse.

But we can't afford to be complacent about the role of LNG: as an industry, we need to take concrete steps to manage our emissions.

For Woodside, we are doing this in the design and operation of our facilities, through carbon offsets and through diversifying into lower carbon energy sources.

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Our world faces a dual challenge - of providing extra energy, with fewer emissions.

This dual challenge is captured in the United Nations Sustainable Development Goals, which recognize the need for extending access to modern energy and for action on climate change.

The challenge is also reflected in Japan's policy objective of 3E+ S (Energy Security, Economic Efficiency, and Environmental Protection, without compromising Safety).

It's a global challenge that is impacting different economies in different ways. Japan and Australia have different paths to navigate through the energy transition - Japan as an energy importer, Australia as a net energy exporter.

But those paths are linked, through trade in energy and by the fact that emissions don't respect national boundaries.

Japan has set itself the goal of reducing emissions by 26% from 2013 to 2030 and reaching carbon neutrality as early as possible in the second half of the century. The latest figures show that, in 2017-18, Japan achieved an 8.4% reduction from 2013 levels.

We have seen signals from the Japanese Government this year that, faced with this challenge, decarbonisation is urgent.

An active debate continues in Japan about the future of nuclear power.

But for LNG, the verdict is in: it will continue to be a big part of Japan's future energy mix. This was underscored by the announcement in recent weeks of $10 billion of investment from the Japanese public and private sectors to build out LNG infrastructure globally, in a sign of confidence in the future global LNG market.

And, of course, Hydrogen will play a role: I'll talk more about that shortly.

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For Australia, the challenge is two-fold.

Firstly, Australia has pledged under the Paris Agreement to reduce its emissions by 26-28% on 2005 levels by 2030. And I think another panelist is going to talk about the transition underway in Australian power generation.

Secondly, our energy-rich nation is looking to navigate the energy transition in a way that maintains the significant value that its energy exports contribute to the national economy. We can't understate how important this is to Australia because our current energy exports are very significant contributors to the Australian economy. Australia needs to work a pathway to a sustainable future.

There can be no doubt that the LNG industry will continue to deliver economic benefits to Australia, such is the global demand for our product. But there is also scope to develop new lower-emissions energy sources, including Hydrogen.

The Hydrogen opportunity:

Hydrogen is an energy carrier that has no carbon emissions when it is used. That's why users love it so much. That's why it's sometimes referred to as the Holy Grail. As you can see in the graphic, we think there is a role for both Blue Hydrogen and Green Hydrogen.

Blue Hydrogen is produced through steam methane reforming of natural gas, with the emissions managed at that point. This is proven technology and readily financeable. Finance will be extremely important as we talk about moving projects to scale.

Green Hydrogen is the ultimate Holy Grail, produced by electrolysis of water, using electricity from renewable sources.

Hydrogen can be used in a wide variety of applications including power generation, transportation and industrial processes, making it one of the most convenient of energy products.

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Japan is well aware of this and has been making impressive progress in its efforts to build a Hydrogen economy.

At the Hydrogen Energy Ministerial Meeting in Tokyo last month, the President of JERA, Onada- San, talked in detail about the potential use of Hydrogen in the form of large-scale NH3 (ammonia) in power generation. Most of this would need to be imported.

As a major supplier of energy to Japan, we have been doing a lot of work on how Woodside can support Japan's Hydrogen ambitions.

Hydrogen from renewables does not exist at scale today.

One of the challenges to scaling up Green Hydrogen is the provision of sufficient renewable power to support its production.

This is a challenge for Japan, given its small land mass and population density and topography. But is also a challenge for Australia. Yes, we have plenty of sunshine and wind and a large land mass. And yes, renewables have undergone dramatic growth and will continue to grow. But massive growth will be required if renewables are to support large-scale Green Hydrogen exports and that will mean dealing with challenges that include land access rights, construction of transmission lines and variable weather patterns.

Let me illustrate the scale of the challenge: if Japan was to meet its targets and close the gap it currently has with its Paris commitments by closing all of its current coal-fired power station fleet and replacing it with Green Hydrogen, it would require somewhere between 350-400GW of renewable power. Capturing that solar power would require a land mass some 3.5 times the area of Tokyo. Or roughly 60% the land mass of Japan. Japan could do it in other ways, but just think about that as an example. It's a mammoth effort that can only be led by governments in a concerted way. Industry has a role but does not have the scale or the finance to do this.

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