Insight Conversation: Meg O’Neill, Woodside Energy

LNG demand growth is expected to rise by over 65% worldwide by 2040 compared to 2030, according to a forecast by S&P Global Commodity Insights, primarily driven by Asia’s soaring appetite for the fuel to quench its surging power demand and achieve its energy transition goals.

Meg O’Neill, CEO and managing director of Australia-headquartered global company Woodside Energy, shares her views with S&P Global Commodity Insights Editorial Lead Surabhi Sahu on how LNG markets are shaping up and how Woodside is poised for future growth.

O’Neill has close to 30 years of experience in the global oil and gas industry. Prior to joining Woodside in 2018 and being appointed CEO and managing director in 2021, she held various technical, operational and senior leadership roles with ExxonMobil in Houston, Indonesia, Canada and Norway.

How has the LNG market dynamics changed over time, particularly after Russia’s invasion of Ukraine and the more recent Middle East conflict?

Russia’s invasion of Ukraine in early 2022 led to a rebalancing of global gas markets as pipeline exports into Europe had to be replaced, at cost and within a short timeframe, by LNG imports. The conflict prompted European buyers who were looking to backfill Russian gas to strike some longer-term LNG import deals with the US and Qatar.

Since the highs seen in 2022, the world has come to terms with the ‘new normal’ and prices have normalized. The emergence of conflict in the Middle East in late-2023 introduced a new shock into an already thin market, resulting in a minor but noticeable pricing response and impacts to shipping flows. The result has been diversification, both on the supply and demand sides.

We have seen Middle Eastern national oil companies diversify into LNG supply in Europe and Africa, while consumer nations such as China are seeking to diversify both their energy mix and sources of LNG supply. September 2024 Commodity Insights 27 This trend is expected to continue as new sources of LNG are brought onstream globally over the coming decade.

How do you see Asia LNG prices moving?

In the short term, there has been a relationship between price and demand sensitivity in key Asian markets, with imports to China having risen markedly over 2024 to date. Supply risks from Russia and maintenance at facilities in Norway and Australia have resulted in short-term price fluctuations, dampened by the presence of European storage.

Demand for LNG is highly seasonal and given it acts as ‘insurance supply’ prices tend to react when there are system shocks such as extreme weather. As additional global LNG supply comes online by the mid- to late-2020s, prices are expected to ease, leading to demand growth.

That will also assist in incentivizing price-sensitive countries to adopt LNG into their supply mix as they step up efforts to decarbonize. Still, uncertainties around the pace of the energy transition and demand growth may result in ongoing volatility.

What is Asia’s role in the LNG market’s demand growth story in the coming years?

Asia is expected to drive significant LNG demand growth over the next 25 years, with non-OECD Asia-Pacific emerging as the major demand center globally. The regional market is likely to be characterized as mature markets such as Japan and South Korea, China as the largest single buyer, and emerging markets in South and Southeast Asia.

Japan and South Korea were foundational in the development of the global LNG industry and are expected to continue needing gas for their long-term energy security. Japan was a crucial player in the development of the Australian LNG industry and signals from the market give us confidence that its demand for secure and reliable supplies of LNG is robust and enduring.

In China, LNG is the swing fuel in the power mix as its renewables buildout accelerates. There are opportunities for increased use of natural gas in China, where it is currently growing from a low base in the power generation mix. Southeast Asia is expected to become the largest LNG growth market in the region through to 2050 as countries that can decarbonize do so by transitioning to gas from coal-fired power generation.

What are your thoughts on Australia’s Future Gas Strategy?

Stability and reliability of supply have been a significant concern for some of Woodside’s key customers. We welcomed the clear statements in the Future Gas Strategy on the role of gas in providing Australia with energy to heat and cool homes, keep lights on and support industry and domestic manufacturing.

The strategy makes it clear that gas is needed to 2050 and beyond, and that future investment is required for Australia’s energy system to be reliable and reach net zero. It highlights the important role Australian LNG plays for our key trading partners in supporting their energy security and living standards, and as regional electricity grids transition from coal-fired power generation towards renewables.

Nearly all of Australia’s LNG is exported to Asian markets and we expect that to continue. Our confidence is based on recent deals Woodside has signed, including our first sales and purchase agreement for long-term supply of LNG to CPC Corporation in Taiwan.

We also recently completed the sale of a 10% equity stake in our Scarborough Energy Project to LNG Japan and have an agreement to sell a 15.1% stake to JERA, subject to completion. Both these important customers are exploring additional LNG offtake, underscoring the value they place on reliable supplies from Australia.

What is the status of the Scarborough Energy Project and how will it contribute to gas supply?

The project, including the construction of Pluto Train 2, remains on target to produce first LNG in 2026. The Scarborough equity sales to LNG Japan and JERA demonstrate the project’s value as a long-term source of gas to these key Japanese customers.

A recent agreement with Japan Bank for International Cooperation for a $1-billion loan to support Scarborough again underlined the confidence Japanese investors have in the project.

Scarborough is also important for the Western Australian domestic gas market, as it will add up to 225 Tj/day of supply at a time when the state is forecast to be facing shortages. In its second quarter report ended June 30, Woodside said it was on track to achieve its full year production guidance of 185-195 MMboe.

In the coming months, from its oil and gas portfolio, which projects will the company focus on?

Scarborough will account for the lion’s share of Woodside’s expected capital expenditure of $5 billion-$5.5 billion in 2024 at 40%. Our new Sangomar oil project offshore Senegal, which started up in June, will account for around 10%, and the Trion oil project in the Mexican Gulf of Mexico will account for approximately 15%. The remaining 35% is a mix of spending on new energy projects and general sustaining capex.

What are your thoughts on carbon capture and storage (CCS) projects in tackling climate change and how can Australia contribute here?

Australia is well positioned to host several large-scale CCS projects, leveraging subsurface understanding obtained over decades of oil and gas exploration and production.

CCS is a mature technology that represents a proven solution to abate large-scale industrial emissions.

In addition to assessing CCS for our Browse project, Woodside is a participant in several domestic CCS joint ventures, including a proposed large-scale, multi-user project near Karratha that would use the depleted Angel offshore gas field. Along with operator Esso, we are also assessing the feasibility of developing a Southeast Australian CCS hub in the Gippsland Basin, off the coast of Victoria.

What are some of the major initiatives or sustainable energy projects being undertaken by Woodside to address energy transition?

Woodside has targets to invest $5 billion in new energy products and lower-carbon services by 2030. As a complementary target, we aim to take final investment decisions on projects with total abatement capacity of 5 MMt/year of CO2 equivalent.

We continue to build a diverse portfolio of opportunities in attractive locations, scalable with customer demand. We focus on locations that are advantaged to enable a lower cost of supply. For example, our proposed H2Perth project is a commercial scale hydrogen facility to be in Western Australia’s premier industrial precinct with an existing harbor, and is near a gas pipeline, water supply and transmission infrastructure.

Next door you have our Hydrogen Refueller opportunity, a self-contained hydrogen production, storage and refuelling station that is expected to supply Western Australian industrial customers in 2025. The Refueller would produce hydrogen via electrolysis, using renewable electricity sourced from the grid.

Our H2OK opportunity in the US is strategically located in Oklahoma to service the domestic truck market. A large portion of Oklahoma’s grid is renewables-based and H2OK would use electrolysis to produce renewable hydrogen.

This is the starting point. We aim to grow and be flexible in line with customer demand.

How will the acquisition of US LNG gas developer Tellurian, which includes the Driftwood LNG project, benefit Woodside?

The Driftwood LNG development offers a pathway to complement our existing Australian LNG position, with an increase in material presence in the Atlantic Basin. This creates opportunity for value optimization and arbitrage between the basins, underpinned by multiple competitive cost of supply LNG sources.

Another key benefit of this deal is the value Woodside unlocks from the start. We will leverage our LNG development, operations, and marketing expertise. We will bring our multi-decade track record as a world-class LNG player and our strong relationships with key suppliers and customers.

This opportunity also fits with our decarbonization plans and has the potential to reduce the average scope 1 and 2 emissions intensity of our LNG portfolio since it uses technologies to design out emissions.

This article was first published in the September 2024 edition of Commodity Insights Magazine.