Qatar Petroleum announced this week plans to boost LNG exports from about 77 million tonnes per annum to more than 100MMtpa by 2024, which RBC Capital Markets warned would put Woodside Petroleum's medium-term second and third "horizon" period growth ambitions at risk.
Those two horizons include the development of not only of three gas-condensate fields in the Browse Basin but two of its big acquisitions in recent years, Kitimat LNG in western Canada and Scarborough in the Carnarvon Basin.
In 2015, Woodside finalised a deal to buy Apache Corporation's 50% interest in Kitimat, including 320,000 acres in the Liard and Horn River basins, adding to its Grassy Point LNG opportunity in the region.
Last September Woodside agreed to buy half of BHP Billiton's share in the Scarborough area assets in the Carnarvon Basin offshore Western Australia, including a 25% interest in in WA-1-R and 50% in WA-62-R (Scarborough) and 50% of WA-61-R and WA-63-R (the Jupiter and Thebe gas fields).
Woodside is now trying to convince its North West Shelf partners BHP, BP, Chevron Corporation, Japan Australia LNG and Shell to develop Browse through the Karratha Gas Plant as a priority over competing resource options.
Perth-based Wood Mackenzie oil and gas lead Saul Kavonic said the KGP was Woodside's trump card amid the rising geopolitical tensions impacting LNG markets.
If Qatar were to go to 100MMtpa, that's more than 20MMt above Wood Mackenzie's base case forecasts, as the Gulf state has the ability to bring on those volumes just from changing the settings and debottlenecking its LNG trains at very low cost - although to get to those volumes it also might need to build a new train.
Like many analysts, Wood Mackenzie saw the LNG market rebalancing around 2023 without factoring in Qatar's announcement this week, but Kavonic said that with the world approaching almost 400MMtpa in global LNG capacity, an additional 20MMtpa would potentially push back that mark by "only a year or so".
"So if we're talking about the start-up window for Browse in the mid-2020s, this announcement from Qatar will not, in and of itself, jeopardise that [timeframe]," he said.
US pressure
Even pressure from another competitors pushing into Australia's traditional LNG market, Asia - such as the US - could be overstated.
"The primary way supply will be curtailed is the US, where capacity will lie idle at times, and as a result US LNG cash costs are going to set spot prices," Kavonic said.
"But when you're looking at the window to bring new projects online, that's when the market rebalances. So if you have relatively low Henry Hub prices, by the time you get to the point that you need to start building new LNG trains, then you need to cover the cost of building [them] as well.
"They [US projects] will need to compete with new LNG trains across the world as well, and the key factor which works for NWS benefit in terms of its backfill in the 2020s is the LNG plant is already there at a sunk cost.
"So you're only dealing primarily with upstream costs. That's why [Browse] can compete even with what are very competitive new US LNG trains."
Upside concern
Morgans Financial senior resources analyst Adrian Prendergast told Energy News that while Qatar's move was definitely a concern for the upside scenario for the LNG price as it would satisfy the market for some time, it would also become a positive demand indicator.
"In any of the real growth regions for energy it would be hard for gas to be competitive long-term for power generating economics versus coal or nuclear because there was such a big impending structural supply deficit that was going to open up in five years," he said.
"Whereas now, we're presented the case that the market will probably be well supplied, and demand growth will also accelerate.
"Certainty of supply would be a major concern on the demand side for customers, and there was no easy way to see the looming structural deficit being unwound. You'd have less confidence then in developing more import terminals for LNG beyond what you can contract now.
Morgans does not expect any upward shocks in LNG, and its bullish scenario now is $US9/MMBtu, whereas Prendergast said a deficit could have seen it fluctuate "materially higher than that".
