Era of Long Term LNG Contracts Not Over Yet: Woodside

Speaking at the LNG Producer-Consumer Conference in Tokyo November 24, Woodside CEO Peter Coleman said era of long term contracts is not over because these contracts are needed to finance big LNG projects.

“The era of 20-year contracts is not over, because the old truths are still just that — suppliers cannot fund the massive investment required to build new LNG projects without long-term offtakers to provide the rates of return that our bankers and shareholders demand,” he said adding buyer reluctance to commit to long-term contracts in recent years has been one of the major factors in developers deferring around $90bn worth of liquefaction plant which would have added 93 million mt/year to global capacity.

Peter Coleman, CEO of Woodside (Credit: Woodside)

Taking this situation into account, Coleman advised sellers to show some flexibilty. “This is where a balance is needed. As LNG projects, including Woodside’s own North West Shelf Project, mature and pay back their original capital investment, sellers can and should become more flexible in their offerings to buyers.”

However, he added that shareholders and financiers simply won’t accept uncertainty for large new LNG investments. “Just as Japanese utilities are now looking at long-term economics to extend and secure the futures of their nuclear power plants, our new projects must be underpinned [70%+] by long-term contracts. That will ensure predictable investment in the new capacity that will be needed next decade and allow today’s market flexibility to be sustainable.”

On rising share of spot trade he said “increasing spot trade in a period of oversupply and low prices means more new buyers are likely to emerge, creating competition from non-traditional buyers, and creates risk for traditional buyers, particularly long-dated buyers, including Japan.”

Shardul Sharma