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Asia eyes the credibility gap

WOODSIDE Petroleum may have slipped through Royal Dutch-Shell’s fingertips but arguably it had already lost one of the key reasons for its takeover bid — shutting out a rival technology from Asia.

While this week’s Federal Government decision to rule out a Shell takeover under any conditions clearly weakens the Netherlands-based multinational’s strategic position in Australia, Woodside had already undermined that position with a recent deal with US group Phillips.

Doing a surprise deal with Phillips to speed up development of Timor Sea fields didn’t just throw the potential of more competing gas into the region. It may allow Phillips its first opportunity to prove its LNG processing technology in Asia, a move which is said to have big repercussions in the market.

“It’s all about credibility,” said one Woodside insider.

Credibility in being able to guarantee supply, that is. Far from its oil cousin, LNG is still relatively hard to get hold of. As a resource it is largely untapped because markets traditionally rely on oil, a far more secure supply.

Oil is the ultimate commodity. If you need more, you simply buy a load on the spot market. It is literally as easy as hailing down a passing ship.

LNG is a little different. If your supplier experiences production problems you will probably have to wait until they are fixed.

Hence, the credibility of Shell’s technology in the key Asian market of Japan which has been supplied almost without a hitch for 12 years from the North-West Shelf operation run by Woodside.

The Japanese, always concerned about energy supply security, gambled that LNG could work

when they underwrote the NWS’s development.

It is a system that has suited both sides well, but now there are changes afoot.

Phillips already supplies Japan from its small Alaskan field. Proving its technology can work on a larger Timor Sea project would have big ramifications for Shell’s perceived dominance of LNG in Asia.

But Phillips needed Woodside fields to make the whole thing work. Shell, a partner in the new developments has played along but many pundits argue such a deal may never have occurred if the Dutch group had swallowed Woodside some time ago.

UWA Centre for Oil and Gas Engineering associate professor Terry Edwards confirmed the different processing technologies were fighting for attention.

“It’s competition, it’s a foothold in the region and access to markets” Professor Edwards said.

He said project operators did not necessarily install their own technology, preferring to custom select from several process design company tenders.

Developments in the Timor Sea are seen as the key to further domestic and international market supply for the big players whose ownership of the various fields

is an intricately woven web.

In February this year, Woodside, Phillips and Shell agreed to coordinate the development of three competing gas projects in the Timor Sea, including the Greater Sunrise venture in which all three have an interest.

Under the agreement Woodside became the operator and Phillips took on the important LNG marketing role.

Phillips then moved quickly to secure a letter of intent to supply an annual 4.8 million tonnes of Greater Sunrise LNG to El Paso for the next 20 years, an amount representing more than half of Australia’s current LNG exports.

This gas will be supplied from a plant to be constructed near Darwin, with Phillips representative Jim Godlove confirming Phillips expected the plant to use the company’s optimised cascade LNG processing technology.

Had Shell been successful in its bid for a controlling interest in Woodside, Phillips had an option to increase its equity in Greater Sunrise to 45 per cent, which would then have matched the combined interests of Woodside and Shell in the project, with another company, Osaka Gas, retaining 10 per cent.

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Share Price

Closing price for the last 90 trading days
Source: Morningstar

BN30 Index

Index = 100 as of 4 Jan 2016
Source: Morningstar

Total Shareholder Return as at 31/08/18

1 year TSR5 year TSR
216thWoodside Petroleum35%5%
259thSouth3226%0%
363rdMineral Resources6%12%
397thIluka Resources1%-1%
612thFortescue Metals Group-29%3%
737 WA (and selected non WA) listed companies ranked by 1 year TSR relative to other companies with similar revenue
Source: Morningstar

Share Transactions

31/08/18
$22k Bought
31/08/18
$23k Bought
31/08/18
$20k Bought
Total value as at the date of the transaction
Source: Morningstar

Revenue

1st↑South32$10,519.6m
2nd↓Fortescue Metals Group$9,358.7m
3rd-Woodside Petroleum$5,050.0m
4th-Mineral Resources$1,706.7m
5th↑Iluka Resources$1,079.2m
507 listed resources companies ranked by revenue.
Source: Morningstar

Remuneration from Woodside Petroleum

1stPeter Coleman$7.555m
18thRobert Edwardes$1.668m
39th​Reinhardt Matisons$1.114m
Ranked by total remuneration from all listed WA companies

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