Asian gas buyers face possible supply shortages as early as 2023 if final investment decisions for 50 million mt/year in new LNG projects are not made soon, given low crude prices and industry weakness, Woodside Energy CEO Peter Coleman said Thursday, November 6.
"I actually see we're starting to build the conditions for a possible supply crunch," he told the LNG Producer-Consumer Conference in Tokyo.
"The prolonged oil price slump will impact returns on existing LNG projects as well as threaten future projects," he added. "In this environment, LNG projects selling at 75-80% oil equivalent simply face the ax."
Coleman said on the sidelines of the conference that projects not in advanced stages of front-end engineering and design today will not be able to supply by 2020 or 2021. "It's very basic math," he said.
Coleman told the conference that oil and gas companies' returns on average capital employed are currently lower than in 2001, and boards of directors are less willing to wait on returns from slow-to-develop LNG projects.
"This is clearly not sustainable and unfortunately the situation is likely to get worse," he said. "We face rising costs -- upstream costs have quadrupled over the last 14 years, and we're entering now a period of oil price uncertainty."
He said the renewed focus on returns on capital mean companies with projects under construction might have to "wait a period of time to allow themselves to work off the large capital commitments or start to get revenue flowing before they embark on the next projects."
"You're already seeing that in Australia ... you're seeing the same signals coming out of western Canada, and similar issues in developing nations," he said.
Coleman said FIDs for an additional 250 million mt/year in LNG capacity are needed to meet expected 2030 demand.
"The requirement for new LNG project investment increases very quickly," he said. "Delays or deferment will simply lead to a supply crunch."
Coleman said the solution is for buyers and suppliers to work together to support new reliable supplies. But he cautioned that suppliers need a clear price signal now to make those FIDs.
"By holding out for a cheaper price, customers are potentially exacerbating the project FID delays and may unwittingly bring a supply crunch," he said. "Only long-term contracts with robust pricing that will underpin investment decisions will ensure that our projects will go ahead and meet supply needs."
About 1,000 people from more than 50 countries are attending the conference, the third in a series of forums between the world's top LNG producers and consumers.
