Be visionary, Chevron boss urges
Chevron chief executive John Watson has urged the gas industry to be creative and come up with new business models to keep alive the next wave of LNG projects required to meet a forecast sharp rise in global demand for the fuel.
Mr Watson, whose company is leading the $US83 billion development of the Gorgon and Wheatstone projects in WA, said yesterday it was "tempting" to defer new developments because the emergence of brownfields LNG ventures based on cheap US shale gas had permanently lowered the "price bar with which everyone else has to compete".
But he said that would ignore market forecasts that LNG demand was likely to nearly double to 440 million tonnes annually by 2025, with new production out of the US only partly meeting the supply shortfall.
"The world will need more than a (15.6mtpa) Gorgon-sized project each year for nearly 10 years to meet projected demand," Mr Watson told the World Gas Conference 2015 in Paris.
"We as an industry will have to move forward on multiple geographically diverse projects today to ensure sufficient supply in the future."
Mr Watson conceded that the US shale-led gas renaissance and accompanying new cost structure, based on the benefit of existing pipeline infrastructure, onshore gasfields and in many cases conversion of LNG import terminals rather than a fresh construction, had "put at risk projects that once seemed certain to go forward in some resource rich countries".
"The implications of this are easy to overlook because in this operating environment marked by ample supply and lower prices it is tempting to defer the investments necessary to ensure affordable and reliable energy supplies into the future.
"But it is critical that we not lose sight of the long term and work now to enable that next wave of LNG."
Mr Watson did not name specific projects that had been put on hold, though a fourth train at Gorgon is seen as one big-ticket development that has fallen victim to lower cost US production.
The Chevron boss' call was matched yesterday by Royal Dutch Shell chief executive Ben van Beurden, who said standardisation and supply side integration were key weapons to attack a prohibitive cost structure.
"The cost trends that our industry has experienced over the last two decades are unsustainable," Mr van Beurden told the conference.
He pointed to Shell's floating LNG push which centred on a 'design one FLNG vessel- build many' model as an example of standardisation.
The first of the FLNG models is to be used on its Prelude project off the Kimberley, with the next two vessels earmarked for the nearby Woodside Petroleum-led Browse joint venture, in which Shell has a stake.
Mr Watson cited Chevron's decision to sell soem Gorgon equity to LNG customers, aligning the interests of supplier and buyer, and Wheatstone's set-up which includes two upstream joint ventures (one led by Chevron, one by Woodside Petroleum) to share the costs of the downstream (processing) plant as the sort of innovative models the industry would need to address a lack of cost competitivenes with US brownfields ventures.
"This is going to be challenging as the new fully integrated greenfield projecst cannot easily compete at low Henry Hub (US domestic gas) pricing," Mr Watson said.
"A first step to developing this global market is recognising that the capital cost of US brownfields projects is unlikely to apply anywhere else in the world.
"If other projects are going to competitive with these US brownfields projects, we are going to need to be creative and try new models as industry did in the US.
"We will need new models to enable the next wave of LNG."
The reporter is attending WGC15 as a guest of the organisers of LNG18 Perth 2016.
