Chinese LNG demand to come back strongly: Woodside

Chinese LNG demand will come back strongly over the rest of 2020 following the impact from the coronavirus outbreak in the country, but the demand outlook for the rest of the year for Europe and the US is unclear, said Australian independent Woodside Petroleum.

Woodside's trading team has recently begun placing some spot production back into China as industrial output and demand resumes, Woodside said.

"We are already seeing pollution levels rise again in China, which is an indication that its industry is getting back to work, and we expect LNG demand to come back strongly there," chief executive officer Peter Coleman said today.

Chinese LNG imports still rose in the first two months of 2020 from a year earlier despite the coronavirus outbreak, which forced parts of the country into lockdown at the start of the year.

Woodside is the operator of the 16.3mn t/yr North West Shelf (NWS) LNG venture offshore Western Australia. The project has a 3.3mn t/yr sales and purchase agreement with Chinese state-controlled energy firm CNOOC for its 6.7mn t/yr LNG terminal at Dapeng in south China's Guangdong province, which was signed in 2002 at a sales price of $3.20/mn Btu.

The impact from a fall in the oil price so far this year will not be realised until late in the April-June quarter because of a lag between the oil price and realised LNG price, Woodside said.

The oil price is expected to be volatile at least in the near term, it said. Woodside has hedged 11.85mn bl of oil between April and December 2020 at an average price of $33.47/bl to reduce exposure to potential further downside and increase revenue certainty, it said.

Woodside has also agreed with a European-based energy trader to fix the price of about 2.4mn bl of oil equivalent (boe) or 255,000t of LNG production over the April-December period to further increase revenue certainty, it said.

The LNG demand outlook in Europe and the US is less certain given that both regions are now bearing the brunt of the coronavirus pandemic, Coleman said.

Demand from emerging markets in Asia ex-China is also more difficult to predict because they are made up of a lot of different markets with their own dynamics and given the current port restrictions in place to contain the spread of the coronavirus, which may inhibit trade, he said.

The firm today deferred the sanctioning of its Scarborough gas field offshore Western Australia, with the gas to be used as feedstock for a second train at the 4.3mn t/yr Pluto LNG venture, which is also operated by Woodside.

"Some LNG projects will still go ahead in this low-price environment, and these are the ones that are mainly backed by NOCs [national oil companies]," Coleman said.

Qatari state-owned QP plans to increase LNG capacity by 48mn t/yr to 126mn t/yr by 2027. "The Qataris are already working on increasing production at the North Field and that is unlikely to stop, so we expect them to continue with their expansion plans," Coleman said.

Russia is also looking to expand its LNG capacity to 46mn-65mn t/yr by 2024 and to 70mn-82mn t/yr by 2035 from 18.9mn t in 2018. "It depends on what incentives the Russian government provides to maintain the expansion plans of the LNG projects there," Coleman said.

By Kevin Morrison