Woodside will start supplying LNG to Indonesian state-owned Pertamina from 2019, ramping up to about 600,000 tonnes per annum from 2022-34, the second ‘horizon' which CEO Peter Coleman spelled out during last month's investor day as part of its short, medium and long-term strategies.

 

The second horizon is the period of time in which Woodside has "value locked" but undeveloped value in assets, including Scarborough, Browse and Myanmar, but none of which are likely to be available for Pertamina.

 

With a number of pre-final investment decision projects jostling to sign up the same buyers to underwrite projects to supply some of the uncontracted global demand forecast from 2022 onwards, RBC Capital Markets analyst Ben Wilson said it would make most sense to supply the Pertamina contract from Pluto given its proximity to Indonesia.

 

Woodside has left the source of the gas open, but recent arrangements allowing Woodside to lift its equity share on uncommitted North West Shelf and Pluto LNG volumes enable it to sign bilateral supply contracts.

 

Though no pricing terms were disclosed, RBC expects the Pertamina contract is likely in line with the firm's long-term assumptions on pricing of a 12-13% slope to Japan Crude Cocktail.

 

The beauty of the SPA Woodside signed with Pertamina is that it provides the option to increase supply from the Perth oiler's global portfolio to 1.1MMtpa from 2024-38, when Browse, Scarborough and Myanmar are likely to be in production if all goes well.

 

Wilson said more contracts by Australian LNG producers with non-traditional buyers such as Indonesia were likely as the LNG market matured.

 

However Wood Mackenzie's Singapore-based vice president, APAC gas and LNG, Kerry Anne Shanks, told Energy News that the very definition of "long-term contract" has changed since Pertamina started buying LNG in December 2013.

 

Technological changes have brought new LNG buyers into the market, many of whom will mean greater instability for producers, prompting Coleman to say last year that companies like his needed to start trading "in-country" rather than "at the border".

 

Yet, while RBC still considers Pertamina a "non-traditional" LNG buyer, it is much more than that, because it already has significant gas infrastructure, and therefore represents a value proposition for the likes of Woodside.

 

The deal also defies the trend towards shorter-term contracts which emerging buyers are more likely to favour.

 

"If there's an opportunity to sell LNG to a big credit-worthy customer any producer would take that," Shanks said. 

 

"The emerging markets often have small and somewhat volatile demand, but that's not always the case. 

 

"Pakistan or Egypt, which are relatively new on the LNG scene, have managed to ramp up their LNG portfolio quite quickly, but that was because they were already big gas markets.

 

"This applies to Indonesia too - there's already plenty of gas infrastructure and demand there, and the LNG is really playing backfill to declining reserves as well as autumn growth."

 

Even smaller deals play to the strength of suppliers who have a larger LNG portfolios, she said.

 

"If you're delivering part-cargoes or to multiple locations, of course that's more complex value chain, but it's going to be easier for a player like Woodside which has a range of LNG supply options and markets where they can place volumes to manage this flexibility and uncertainty that the market is asking for," Shanks said.

 

"You do have some buyers who prefer to go to the spot market. Often if you're developing power or regas assets that banks will want some sort of security that there is at least a partial supply agreement in place.

 

"There is definitely a trend that people are going towards shorter-term contracts, they're willing to take more spot exposure, but it's very difficult to generalise because every buyer has different needs.

 

"It also depends on how you define long-term. A few years ago a 20-year contract to finance a train, now you're seeing five and 10-year deals and buyers topping up on 1-2 year deals, so you might see the tenor of deals drop a bit, and players like Petronas are now saying longer-term deals are more difficult to do.

 

"It's not an LNG project that's doing the contract it's a portfolio player … so there is some flexibility about the way things are structured."