The CEO of Woodside Petroleum Ltd. said on June 26 that Australia’s biggest independent oil and natural gas company will soon decide whether to continue to invest in Sempra Energy’s (NYSE: SRE) Port Arthur LNG export project in Texas.
Peter Coleman, who was speaking at the World Gas Conference in Washington, said the project’s ability to provide Woodside with an adequate return is “very challenged.”
“We’ve got to make some decisions pretty soon about our continued pursuit [of Port Arthur] with Sempra,” said Coleman, noting that Woodside has been paying part of the project’s development costs.
“What we’ve been doing is just paying our way [with Port Arthur], and whether that is going to give us an adequate return, I would say today that is very challenged,” Coleman said.
In February 2016, Sempra and Woodside agreed to share the cost of developing Port Arthur, which could result in Woodside buying half the project once the parties made a final investment decision to build the facility.
Officials at California-based Sempra, which announced on June 26 that Polish Oil & Gas Co (PGNiG) agreed to buy LNG from Port Arthur, were not immediately available for comment.
The Port Arthur project, which Sempra has said could cost $8 billion-$9 billion, includes two liquefaction trains capable of producing about 11 million tonnes per annum (mtpa) of LNG, up to three storage tanks and facilities to load LNG onto ships.
Global LNG imports rose 9.9% to 289.8 million tonnes in 2017, according data from the International Group of Liquefied Natural Gas Exporters.
The Port Arthur facility has been in the news a lot recently as Sempra moves closer to a final investment decision. That decision could come in 2019 with first LNG production in 2023, according to the project schedule on the Port Arthur website.
On June 26, Sempra and PGNiG signed a 20-year contract at the World Gas Conference in Washington for the sale and purchase of two mtpa of LNG from Port Arthur starting in 2023.
Last week, Sempra said it selected Bechtel as the engineering, procurement and commissioning contractor for Port Arthur.
Last year, Sempra signed a memorandum of understanding with Korea Gas Corp. as a potential purchaser of LNG from and equity participant in Port Arthur.
As consumers shift from coal to cleaner burning gas for power generation and other uses, global LNG demand is expected to grow about 4% per year through 2035, according to data from Woodside.
China’s LNG demand alone is expected to grow at 7% per year through 2025, according to a report from energy consultant Wood Mackenzie, which projected world LNG demand would start to exceed supply in 2022 or 2023.
To meet that demand growth, Port Arthur is one of more than two dozen U.S. LNG projects searching for buyers so they can make a final investment decision.
In Canada, meanwhile, Woodside is working with Chevron Corp. (NYSE: CVX) to develop the Kitimat LNG project in British Columbia with a capacity of 10 mtpa.
Coleman did not say when the company would make a final investment decision on Kitimat, noting Woodside and Chevron were working on getting the plant costs down.
Woodside expects to produce between 85-90 million barrels of oil equivalent (MMboe) in 2018, most of which will come from its Australian LNG projects, up from 84.4 MMboe in 2017, according to a forecast in its 2017 full year results. LNG represents about 69-71 MMboe of the company's 2018 production guidance.
Oil and gas producer Apache said on April 23 it would delay natural gas production from its Alpine High assets in the Permian Basin due to "extremely" low prices.
Shell is moving to sell its stake in Indonesia's $15 billion Abadi LNG project, Reuters reported citing industry and banking sources.
Having eclipsed coal as primary fuel, midstream deal flow dominates utilities.