Woodside Sees Lower LNG Prices as Buyers Push Contract Changes

  • Co. has opened negotiations for new deals from Pluto project
  • CEO expects buyers to resist destination clauses in future

Woodside Petroleum Ltd. expects lower liquefied natural gas prices as it renegotiates short-term contracts and says buyers across Asia will increasingly resist deals that restrict the reselling of the super-cooled fuel.

The plunge in crude means suppliers are being forced to offer lower prices for oil-linked LNG deals even as buyers demand more flexible terms amid a global glut, according to Woodside Chief Executive Officer Peter Coleman. Japan, the world’s biggest buyer of the fuel, is investigating whether contracts that restrict buyers from resales impede free competition, Bloomberg News reported last month.

“It’s a buyers market at the moment and there’s no doubt about that,” Coleman said in a phone interview Friday. “As we renegotiate contracts they will need to reflect today’s market and today’s market is lower than it was in 2013, so I can’t tell you I’m going to get the same price.”

Woodside is currently in talks for new short-term offtake deals for LNG supplies from its Pluto field after a previous wave of contracts signed in 2013 are due to expire in 2017, he said. Asian spot prices for LNG have slumped by about 60 percent since September 2014 and fell to $5.319 per million British thermal units Thursday, according to the Singapore Exchange Ltd.

Seller Flexibility

Coleman doesn’t expect existing contracts to be renegotiated but said it will be more difficult to impose destination-restriction clauses on buyers across Asia who want the freedom to shift to international sellers from traditional importers. Japan’s Jera Co., a joint venture between Tokyo Electric Power Co. Holdings Inc. and Chubu Electric Power Co. won’t sign contracts with the clauses, the company said in September.

“Europe has already gone that way and I see it applying more to new contracts than I do to existing contracts,” said Coleman. “What I think you will find is the buyers will work really hard in new contracts to ensure those clauses are not in there to the extent they are today. Equally, as a seller, we will be saying I want flexibility to be able to provide supplies from anywhere. It’s just a natural evolution of change.”

LNG producers are facing head winds from the oversupply, which has given buyers stronger bargaining power when renegotiating both the pricing and mechanics of LNG deals. Woodside posted a 50 percent fall in first-half profit to $340 million the company reported earlier on Friday.

Santos Loss

Rival gas producer Santos Ltd. plunged to a first-half net loss of $1.1 billion on Friday largely because of a $1.05 billion charge on its Gladstone LNG export project in Queensland. The Adelaide-based company hopes to cut the oil price level at which it breaks even to a range between $35 and $40 a barrel from $43.50 a barrel currently.

Origin Energy Ltd. recorded a full-year loss on Thursday of $589 million with exports from its $25.9 billion Australia Pacific LNG project, located alongside Santos’ GLNG facility, impacted by lower oil prices.

Australia’s other major LNG player, the Papua New Guinea-focused producer Oil Search Ltd., is due to report its first half results on Tuesday.

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