China spat fells Woodside LNG plan
Woodside Petroleum has been forced to postpone talks to sell LNG to China, the world’s biggest gas buyer.
Woodside Petroleum has been forced to postpone talks to sell LNG to China, the world‘s biggest gas buyer, blaming trade tensions between Canberra and Beijing which have forced Australia’s largest LNG producer to find alternative markets.
The fallout with Australia‘s biggest trading partner has widened to the nation’s $36bn LNG sector amid the ratcheting up of trade tensions. It ratchets up the economic fallout between the nations after potential Chinese buyers pulled out of a deal in November to acquire a stake in the energy producer’s $16bn Scarborough gas project.
“They’ve been very clear that they won’t prioritise those LNG contracts until relations between the Australia and Chinese governments improves,” Woodside chief executive Peter Coleman told The Australian.
“The deals we are talking about - long-term LNG deals - will be held up in our view. That‘s certainly what we’re hearing back from the Chinese buyers.”
Woodside - which plunged to a $US4bn ($5.2bn) annual loss on Thursday after a writedown hit - is looking to sell long-term supplies of LNG from projects including Scarborough but Mr Coleman said the standoff could last for all of 2021 with little sign of the spat easing.
That means the world’s biggest gas market will remain off limits to Woodside for the foreseeable future, adding to the fallout for one of the nation’s top export earners following China’s ban on buying Australian coal.
While Woodside’s existing LNG supply contract to Guangdong remains unaffected, Australia’s biggest LNG producer has been forced to find alternate markets. China remains off limits, much to the frustration of the WA producer.
“Clearly we‘re looking to get more exposure to that market. We like Chinese buyers but the reality is if we don’t have it, we’re forced to diversify elsewhere.”
The Woodside chief’s comments are a new blow to Australia’s second biggest export industry worth $36bn and are another sign the near year-long bilateral stoush remains at fever pitch.
China is the joint largest export market for Australian LNG with 29m tonnes of the commodity sold to Beijing in 2020, according to consultancy EnergyQuest.
While Woodside is preparing to re-start a process to sell a 25 per cent stake in Scarborough, it does not expect any Chinese buyers to be involved in a deal.
“With respect to an equity selldown, that‘s an even higher bar for them to get over. And at this point we don’t expect they will be able to participate in an equity selldown process,” Mr Coleman said.
“They haven‘t pointed to FIRB issues or anything specific like that. They’ve just pointed to relations between the Australian and Chinese governments.”
While the Australian government had made a number of representations to the Chinese government over the coal ban, Woodside said it had no expectation of the situation changing in the near-term and would focus on other buyers and investors for LNG sales and the Scarborough stake respectively.
“We will be ready in the next few months with respect to the commercial arrangements. But then when any buyers will be ready to sign is something I can’t predict. I can’t call on the government - it’s not my job to do that - my job is to find other markets. We‘re not going to get into the politics of it.”
The LNG producer reported an annual net loss after tax of $US4.028bn from $US343m a year earlier while underlying net profit fell to $US447m, below market consensus of $US471m, compared with $US1.06bn last year.
It declared a final dividend of US12c a share, making a full-year payment of US38c per share but down on last year‘s 55c payout.
A final investment decision on Scarborough and the Pluto-2 expansion are due in the second half of 2021 and Mr Coleman, who will depart Woodside in that same timeframe, said any decision to sanction the development would ideally be made by his replacement.
“Ideally you’d want the new CEO to sanction the project and then they’d own the project in the shareholders’ eyes. I’m secure enough in myself to know I don’t need to go and chase trophies to have on my shelf.”
Woodside also confirmed it remains in talks with credit rating agency S&P over its balance sheet after the gas giant was placed on CreditWatch negative due to rising industry risks from a switch to renewables.
It rejected talk it may require a capital raising to retain its credit rating. It has previously stated it holds the financial firepower to push ahead with Scarborough this year, noting it was one of the few companies in the sector to hold on to its credit rating amid Covid and oil market volatility.
Woodside fell 2.4 per cent or 62c to $25.34.