Woodside struggles to sell LNG volumes at Louisiana LNG plant
- Woodside's high liquefaction fees deter buyers, sources say
- Woodside's only long-term deal is with Uniper for up to 2 MMtpy from Louisiana LNG
- Woodside expects Louisiana LNG deliveries to start in 2030 under Uniper agreement
Australia's Woodside Energy is struggling to sell liquefied natural gas volumes from its planned Louisiana LNG export facility because it is seeking liquefaction fees above prevailing U.S. market rates, two people familiar with the matter told Reuters.
The Australian energy producer has so far announced only one long-term sales and purchase agreement for the project, a deal with Germany’s Uniper covering up to 2 metric MMtpy. That is equivalent to about 25% of Woodside’s share of the plant’s output, outside of the 8 MMt of LNG it has decided to keep for its own portfolio.
Liquefaction fees are charged by producers on top of the base energy price to turn natural gas to liquid for transport. They have been rising amid labor shortages, increasing construction costs, and strong demand that's been further boosted by the ongoing Iran conflict, but the resistance Woodside is facing could signal a ceiling on what buyers are willing to pay for U.S. LNG.
“The problem Woodside has is the price of its liquefaction fees, which are above what others in the U.S. are charging,” one of the sources said.
According to that person, Woodside initially sought liquefaction fees above $2.80 per million British thermal units (MMBtu), compared with broader U.S. market rates of around $2.40 to $2.50 per MMBtu. Cheniere Energy - the largest U.S. producer - charges slightly higher fees around $2.60, while Venture Global is among the lowest at about $2.30, the source said.
Another source familiar with pricing discussions said Woodside’s offering has been attractive in some respects, including contract duration, but that pricing has proven to be a sticking point.
“Woodside is offering 10-year contracts, which are attractive in terms of duration, but the sticking point has been the price,” the source said. “They wanted $2.80 per MMBtu but are now offering it at $2.60.”
WOODSIDE HAS REPORTED STRONG CUSTOMER INTEREST. Woodside declined to comment. However, speaking at a press conference after Woodside's annual general meeting last week, CEO Liz Westcott said customer interest remained strong and that the company was comfortable with progress at Louisiana LNG.
“Many customers are seeing the benefit of being geographically diversified, and we are very comfortable with how the process is going in Louisiana LNG,” Westcott said.
“We continue to be well priced in the market. We were in the next wave of LNG projects, and we are one of the lower-cost LNG suppliers,” she added.
The Louisiana LNG venture has formed part of Woodside’s expansion strategy into North America, betting on a pro-fossil-fuel administration in the U.S. and growing global demand for gas.
Phase 1 of the project is expected to cost about $17.5 B. Woodside has sold 40% of the facility to U.S. investment firm Stonepeak, with U.S.-based energy infrastructure firm Williams taking a further 10%.
The first phase of the project involves building a three-train, or processing unit, facility with total capacity of 16.5 MMtpy. Woodside has sold down 50% of the plant, and has said it will keep just over 8 MMtpy of LNG for itself while offering the next 8.5 MMtpy to market through long-term contracts.
Woodside's supply deal with Uniper will see the German firm take 1 MMtpy of LNG from Louisiana for 13 years as well as up to an additional 1 MMtpy from its global portfolio. Deliveries are expected to start in 2030, when Louisiana LNG is scheduled to be commissioned.
Last month at CERAWeek, Mike Smith, the CEO of Freeport LNG, complained that liquefaction fees were too low and the company will not build new capacity with prices below $3 per MMBtu.
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