Canadian LNG projects must cut costs to succeed, Woodside CEO says

10/19/2015

By REBECCA PENTY
Bloomberg

The cost for Canadian shipments of liquefied natural gas (LNG) must drop by almost a third for projects to succeed as a supply glut makes LNG a buyers’ market, according to Woodside Petroleum CEO Peter Coleman.

Asian buyers can afford to pay a maximum of $10 to $11/MMBtu for long-term deliveries of the fuel, Coleman told reporters after speaking at a recent LNG conference in Vancouver. The Australian producer is backing an export proposal on Canada’s Pacific Coast led by Chevron, after acquiring a stake from Apache Corp. last year.

“It’s a difficult time to be in the marketplace for LNG,” Coleman said. “That means cost structure here needs to come down by anywhere between 25% and 30%.”

The almost two dozen gas megaprojects proposed for British Columbia are vying with supplies coming on stream from Australia and the US, as Asian demand slows and the oil slump lowers LNG prices, reducing companies’ ability to fund major developments.

None of the Canadian ventures being considered by companies including Royal Dutch Shell, Petronas and ExxonMobil have started construction.

The Canadian projects will be challenged to maintain momentum the longer the oil price rout lasts, Coleman said. The Chevron-Woodside venture known as Kitimat LNG is currently assessing the gas supply source required and continues to talk to potential customers, after completing work on a proposed pipeline and terminal, Coleman said.

“Before we get to an FID, we need to have each of those elements understood,” he said, referring to a final investment decision.

Kitimat LNG was the first to propose exports of the fuel from the country.