Woodside under pump, flags Browse gas delays
Woodside Petroleum boss Peter Coleman has admitted the company faces pressure on a number of fronts.
Woodside Petroleum chief executive Peter Coleman has admitted the company faces pressure on a number of fronts, saying companies are pushing for price cuts in gas contracts, and confirmed a processing agreement over its flagship expansion project will be delayed by six months.
Speaking in Karratha yesterday after showing analysts around Woodside’s Pluto facilities, Mr Coleman confirmed buyers of the company’s gas were pushing for lower prices as LNG exports from the US push down prices in Asia and new projects come on stream across the world.
Mr Coleman also confirmed a tolling agreement with the North- West Shelf gas joint venture, for gas from its giant Browse deposits, won’t be ready by the middle of the year as promised, and could be six months away.
The admission means Woodside and its Browse partners will almost certainly have to seek an extension of retention leases from federal Resources Minister Matt Canavan, who told The Australian last week he was in no mood to tolerate further delays to the long-overdue project.
Mr Coleman said negotiations over processing Browse gas through the North West Shelf plant had “wandered” because both sides had been trying to develop a generic tolling agreement that would set a price on any new gas coming into the facilities, rather than focusing on a price for Browse gas.
“What the partners had agreed at the beginning of the year was that they would go through a two-step process, which would be firstly to develop a generic gas processing agreement that anyone could come into, and then develop a Browse-specific agreement once the generic one had been completed,” he said.
“We’re in a process of resetting, but the commitment from all parties — including the party that wanted to go back and re-set — is that we will have this finished by the time we need to go to front-end engineering and design on Browse. And Browse partners have agreed to go to FEED by the end of this year.”
The admission puts Woodside on a collision course with Senator Canavan, who said the clock was ticking on the development, and he wanted to see a “locked-in plan” to develop Browse if he was to extended leases on the project when they expire in mid-2020.
Mr Coleman also confirmed Woodside was under pressure to lower the price its charges customers who signed long-term gas contracts, as gas prices tumble across the globe. LNG prices have hit a three-year low as supply floods the market amid expectations global production of the fuel will surge by a quarter by 2020.
Macquarie analysts say they expect spot prices in Asia to “remain relatively weak over the coming years, with potential for subdued pricing to persist until the back-end of the next decade”.
Macquarie tipped Woodside as being particularly vulnerable to falling spot prices, with nearly a third of its output next year uncontracted on their estimates.
Mr Coleman yesterday confirmed even its contract prices were under pressure, with the company in negotiations with customers over contracts from its flagship Pluto development.
He said Woodside’s gas customers, dominated by Japanese buyers, were unlikely to invoke commercial arbitration to duck paying out-of-the-money contracts, but were undoubtedly seeking cheaper gas from Australian producers.
“As the buyers go through those price reviews, of course they are trying to look for other ways, particularly around diversion clauses and so forth that they can sneak in. And we’ll accommodate that where it makes sense, to be honest,” he said.
But Mr Coleman played down the potential impact, saying it was a scenario that played out across the industry on a regular basis, but cautioned against using spot prices — currently trading as low as $US4.30/mmbtu on the Singapore market — as a guide for the likely outcome for Woodside, as its contracts specified links to the landed price in Japan, not the spot price. “We’ve been through this many, many times — North West Shelf has 13 contracts and three to four of those contracts are open every year for price negotiations. That doesn’t mean there’s not downwards pressure on prices, there is, no doubt about it,” he said.
Woodside shares closed up 5c at $37.16 yesterday.