Asian LNG Buyers Delay Deals Amid Oversupply, Woodside Saysby
Long-term, oil-linked LNG prices are now below spot, CEO says
Woodside CEO says exploration acreage may become available
Woodside Petroleum Ltd., the Australian liquefied natural gas producer, said Asian buyers are delaying signing new long-term supply contracts amid forecasts for a growing glut.
“They’re being very short-term and opportunistic, and very commercial,” Chief Executive Officer Peter Coleman said in an interview Thursday in Sydney. “There are no new long-term contracts being signed, or very, very few.”
Crude has fallen so much that LNG cargoes purchased under long-term, oil-linked contracts are actually cheaper than spot deals, Coleman said a day after Woodside posted a 99 percent drop in 2015 profit, its worst result in 13 years. Brent, the global benchmark crude, has dropped about 70 percent from a 2014 peak and traded at $34.73 a barrel at 7:43 a.m. London time.
“Because of where the oil price has dropped to -- I doubt any buyer had that in their outlook -- it’s providing a situation where spot is a bit higher than the long term,” he said. “That will work its way out,” possibly when oil gets to $45 or $50 a barrel, he said.
Spot purchases in recent years have been cheaper than cargoes bought under long-term deals and are forecast to cost 31 percent less than contract purchases this year, analysts at Goldman Sachs Group Inc. said in a report Feb. 15. The collapse in crude prices has narrowed the spread between spot and oil-indexed prices, though the appeal of spot deals will increase as oil prices rise toward the end of the year, according to the Goldman analysts.
The Woodside CEO said Wednesday he’s “very wary” about a recovery in the oil market this year, and the company is making plans based on prices of $35 a barrel, only slightly above the latest Brent prices.
A wave of new supply that’s pushing prices lower may close the door to some U.S. exporters seeking to sell the fuel to Asia, according to Credit Suisse Group AG. The price in Asia bought through long-term contracts, traditionally linked to oil, may fall to a low of about $4.10 per million British thermal units in June, Credit Suisse analysts wrote in a Feb. 5 note.
Woodside’s proposed Browse LNG project in Australia with partners including Royal Dutch Shell Plc needs to cut its costs further and doesn’t have any firm sales, the company said. While Woodside said last year it intends to make a final investment decision on Browse in the second half of 2016, that may now happen in the first half of 2017, according to Citigroup Inc.
Woodside is considering acquisition opportunities and sees attractive exploration acreage potentially becoming available, Coleman said in the interview.
Origin Energy Ltd., ConocoPhillips’s partner in a A$24.7 billion ($18 billion) LNG project in Australia, still sees demand in markets such as Pakistan, Malaysia and India, its Managing Director Grant King said Thursday in a phone interview.
“We still feel LNG prospects are good,” he said.