Woodside Petroleum Ltd| Operating and Financial Review 25

1. Supply forecast based on existing capacity and under construction developments.

2. LNG demand growth to 2035 is widespread across Asia. Japan is the only regional market to contract. Source: Wood Mackenzie.

ENERGY

MARKETS

Rebalancing of the global LNG market is expected in the early 2020s, with global LNG demand forecast

to exceed supply. Woodside's strategy is focused on delivering new LNG supply to energy markets in the

required time frame.

The LNG market is growing rapidly, underpinned by the

role of natural gas as a clean, reliable and aordable energy

source. The expectations of some market commentators of

a large oversupply have not materialised. LNG demand has

increased by over 21% in the past two years. Continued LNG

demand strength, supported by higher energy demand and

an increased focus on air quality, is signalling the start of a

new cycle of LNG project sanctions.

A signiﬁcant driver of recent LNG demand growth has

been Asian countries’ increased focus on air quality. Gas is the

cleanest burning hydrocarbon and has received strong policy

support from countries seeking to replace coal-ﬁred power

generation. China has led with large-scale replacement of coal

with natural gas.

South Korea has also developed energy policies signalling

a shift away from coal-ﬁred and nuclear power generation

towards cleaner-burning gas. India’s energy demand growth

has been fuelled in large part by coal and accompanied by a

deterioration in air quality. To address this, India has released

new energy targets including increasing the share of gas in the

energy mix from 6% in 2018 to 15% by 2022 and prioritising

infrastructure development such as LNG receiving terminals

and gas network pipelines.

Beyond use in power generation, gas is forming part of a policy

push for cleaner sources of fuel in transport and industry. In

China, industrial use already represents over 30% of total gas

demand and is expected to grow at over 4% p.a. to 2030 as

gas replaces other fuels. China has introduced incentives for

compressed natural gas (CNG) in light-duty vehicles and LNG

in trucks. Today there are around 300,000 natural gas fuelled

trucks on Chinese roads.

New supply regions such as the USA and Russia are

contributing to the growth of the global LNG market. In 2019

Australia is set to become the world’s largest supplier of LNG.

The growth of the LNG market has involved more diverse

buyers and sellers and with them, evolving commercial and

contracting structures. The traditional long-term contract

remains prevalent, but more innovative contracting structures

with variety in pricing mechanisms, contract length and

ﬂexibility are becoming increasingly common. Both buyers and

sellers are seeking a combination of long-term, mid-term and

short-term contracts within their portfolios.

New LNG investment decisions are required in the coming

18 months to ensure the market remains adequately supplied

with LNG from the early 2020s. Projects supported by equity

partners

with strong balance sheets will be best positioned to

participate. With their close proximity to Asian LNG demand

centres, our growth projects are ideally positioned to meet

growing LNG demand.

Source: Wood Mackenzie ‘Global Gas Markets Long-term outlook 2018: LNG Supply’ and

Wood Mackenzie Q4 2018.

 Japan, Korea and Taiwan2

 Europe

 China

 Developing Asia

 Other

Global LNG supply1

Mtpa

700

600

500

400

300

200

100

LNG Demand Outlook

2035 forecast Asian

LNG demand

above 2018 levels