Woodside Petroleum : 04.04.2017 CEO Gastech Speech 4 April 2017

How are gas suppliers adapting to the changing global market? Peter Coleman, CEO and Managing Director Woodside Energy Ltd. Gastech Japan Tuesday 4 April 2017

Thank you. It's a pleasure to be speaking in Japan again - a very important partner for Woodside.

Japanese investment has played a central role in our industry, underpinning the development of supply over several decades.

We are meeting at a time of transition for gas. There is an abundance of gas globally and it is understandable buyers may not want to look beyond the short term.

But we need to look over the crest of the hill and it is clear a supply shortage looms, unless investment decisions are taken soon.

The current conditions are not favourable for major investment in greenfield developments.

A range of factors have compounded the uncertainty: geopolitical risk, questions about 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.

As suppliers, we have been working hard to keep costs down. In 2016, Woodside achieved a 28% reduction in unit production costs. And we continue to explore options for brownfield expansion, developing proposals to further grow production from our existing facilities.

Now it is time 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.

The changes now occurring in the market mean there will be competition for those supplies.

The current availability of gas has stimulated new demand and accessible regasification technology has allowed new countries to enter the market.

Imports to countries using Floating Storage Regasification Units have already grown from 10Mtpa in 2012 to almost 30Mtpa in 2016 amid new demand from countries including Indonesia, Pakistan, Egypt, Argentina, Brazil and Jordan1.

And that's set to grow further. Bangladesh, India, the Philippines, Sri Lanka and Vietnam are also considering deploying FSRUs.

Emerging markets now account for 5% of global LNG demand and that's expected to rise to 27% by 20252.

We anticipate the next wave of demand growth will come from the use of LNG as a transport fuel, in ships and on road and rail.

The International Maritime Organisation's announcement of new caps on sulphur content in shipping fuel from 2020 has added momentum to this switch to LNG as a transport fuel. If all the ships in the world converted to lower-emission LNG, that market alone could account for 200Mtpa.

At Woodside, we are switching to LNG-fuelling of our own supply vessels and investing in infrastructure to provide LNG as a fuel to other industries and exporters.

Japan is also preparing for this change, with plans to launch ship-to-ship bunkering in 2020 and develop the Port of Yokohama as a regional LNG bunkering hub. In this regard I am encouraged by Minister Takagi's [Minister for Economy, Trade and Industry] comments this morning.

1 Wood Mackenzie LTD, Q1 2017

2 Wood Mackenzie LTD, LNG Service & Tool Q1 2017

I've noted already that Japan has long played an important role in growing the LNG market.

That involved agreeing contracts arising from commercial negotiations, which considered a wide range of factors, from destination clauses and pricing to the purchase of equity on very favourable de-risked terms. If existing contracts are reopened, then other terms may also need to be reconsidered, for example, restrictions on sourcing of supply.

The LNG market is rapidly 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 20143.

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. Thank you.

3 International Energy Agency, Global Gas Security Review 2016