Following is the transcript of CNBC's exclusive interview with Peter Coleman, CEO of Woodside at the Credit Suisse Asian Investment Conference in Hong Kong. The interview was broadcast on 19 March 2018.
All references must be sourced to a "CNBC Interview'.
Interviewed by CNBC's Bernie Lo and Akiko Fujita.
Akiko Fujita (AF): Well, now we're going to be talking to the CEO of Woodside, Peter Coleman joining Bernie and I here in Hong Kong. Welcome, great to have you on. You are about to kick off a panel in just a bit, talking about this new paradigm and you know all the talk of these investments that are going into clean energy, when you look at the broader mix right now it's still very much, dirty. That's one way to put it. Why do you think it's been so slow to pick up here? Are we getting a little too impatient here when you talk about the investments that need to be made, the infrastructure that needs to be built out, as it relates to clean energy?
Peter Coleman: I'm not going to let you get away with calling fossil fuels dirty. So, we'll talk about what's the most efficient energy that we're getting into the marketplace. And of course, even in the fossil fuel sector you're seeing companies now become far more efficient in what they're doing and of course, a lot more discussion now around carbon capture and storage so, those technologies themselves are moving on. I think that's been the good thing about the debate. Whereas renewables of course, it's coming off such a small base and so the exponential growth that we've seen over the last couple of years, by the way which has been on the back of policy, it's not on the back of the fundamental economics of the investment, it's been on the back of policy. Policy, meaning that there's a lot of subsidies still going into the renewables sector. So at some point in time, you know that growth rate will continue but it's going to, it's going to roll off, I can't tell you where that is.
Now what's different about renewables to fossil fuels, of course, there is no technology barrier in there and so the barrier to entry is a very low one. It's kind of what we call a 'plug and play' system. There's a lot of people going out and starting out renewables' companies today. So what we haven't seen yet is, where's the natural barrier to that next point in growth? It's clearly not technology. It's clearly not cost at this point because, of course, it's being subsidized. Maybe it's competing land use, maybe it's something else, but well maybe as we've seen, synchronization into the system and how much the system itself can actually stand. But I see growth in that sector continuing for some period of time.
Bernie Lo (BL): Peter, has the, we've been in that protracted period of relative stability in crude oil prices. I mean, there was a time not too long ago when you know OPEC was kind of, you know, tinkering around with supply constraints. And you know, we were all asking the question, how are they going to stick with it? Because they have a long history of cheating on each other, in that once-mighty cartel. But now that we see that relative stability, does it make it easier to budget? Does it make it easier to do your forward planning in terms of, you know, 'how much do we devote to fossil fuels?' Because it's not going away, it's going to be around for decades to come. How much do we increasingly add to the renewable budget now that we're at $60? Is it a sweet spot?
Peter Coleman: Well, I think it's a nice spot where it is at the moment, around $60-65 per barrel. Brent was $66 this morning, so every day I wake up and I see that sort of price range, is pretty much a good day for us. Because you know what you've seen over the last three years, particularly in the upstream part of the oil and gas business, people have got their cost base down. And so you can almost say that $65 today is kind of the new $80 of what we were three or four years ago, simply because we've got cost down and we've got margin back into our business. It's a sustainable business today at those sorts of price levels and I think OPEC's probably looking at the same thing. They're saying demand continues to grow at more than 1.5 million barrels per day globally and that's going to continue to grow for some period of time. At this price you can start to get, you're starting to see new projects go to final investment decisions, so people are starting to get that confidence again that they can invest, but it's still early days. You know I wouldn't, I wouldn't call it on it. I don't know anybody that is budgeting for $65, I think most of us are still down in the $50s. Now with respect to renewables, you are seeing a lot of companies, particularly the 'supermajors', go out there and make quite substantial investments today in renewables, so they're starting to change their portfolio mix and saying, you know, 'to be responsible, to make sure we get the lowest carbon footprint we can, we need to have a percentage of renewables in that mix and we also need to look at the mix itself'. You can see they're going more gas oriented in there. They're actually starting to say, the mantra's moving from being an 'oil and gas' company, to being a 'gas and oil' company because gas comes with natural credits on a relative basis, when you're looking at carbon emissions.
AF: Let me ask you about the business side of things for Woodside, because you just acquired Exxon Mobil's 50% interest in the Scarborough gas project. I know this is a long-term project but in terms of a timeline, what are you looking at right now?
Peter Coleman: Well, what we're trying to do is shorten that paradigm because the marketplace is really demanding new projects to come out. If you think about where the LNG supply and demand is at the moment, from really early 2019 there will be no new supply coming into the marketplace and existing supply will continue to decline. You're seeing historic suppliers like Indonesia already turn around and start to supply their own domestic needs from the LNG supply and they're taking that out of the market. So from early 2019, mid 2019 – no new supply coming into the market. What we're seeing because of the downturn over the last three years of course, no buyers in the market but also no companies having the money to be able to go to FID. There's been very few new projects going through and there was only one last year at a modest 3 million tons. We need 15 million tons of new build per year on average coming through. Now the timeline, from when I make a decision to invest, to actually getting first production is roughly five years. So it doesn't, it's not hard to do the math, to say 'today we've got a looming supply shortage coming up with the projected demand out in the marketplace', so that's why we're positioning ourselves. Scarborough is a classic opportunity where we had some assets on the onshore. We can use an offshore asset, we can leverage that and get low cost in the market. What we're going to do is try and accelerate it, so we put some commitments out there to shareholders around making large decisions by 2020. I can assure you we're working really hard today to see if we can bring that schedule forward.
BL: Peter, I've asked this question before and I never really got a definitive answer. I'm wondering if there's an update to, or an updated answer, to this question. Once hydraulic fracturing took place, took hold in the U.S., it went nuts, it spread like there's no tomorrow and became largely responsible for the U.S. turning the corner and suddenly becoming from, an importer and a dependent country on imported energy, to a net exporter in many categories. Is fracking something that should be considered, can and will be considered, in other countries? A lot of engineers, geotechnical engineers, have told me that this would open up a whole new supply pipeline, but there are political and land ownership issues that get in the way.
Peter Coleman: There are, and let's talk about the misnomer out there in the market, fracking's been around for many years. It's been around for decades in different forms. The big change that occurred in the U.S. is they matched up fracking with horizontal drilling and so they were able to increase the length of the wells that access the reservoir and so by fracking, then they opened up more of the reservoir. They hadn't been able to do that before and that was really the perfect combination that got it all together. You can go around the rest of the world and frack, there's no doubt about it. The issue and the advantage that the U.S. has of course, is it has all of the onshore or the surface infrastructure. It has the pumping units, the companies that do that. It has the pipeline systems in place and so forth. So it naturally lends itself to that, that sort of activity. But no, there's no reason we can't go anywhere else in the world. It's been proven, it's a safe activity. I know there's a lot of concern about ingress into aquifer systems and so forth but the industry's been dealing with this for many, many years. So it's a matter of continuing to educate, continuing to look for opportunities, but at the moment I don't think regulations are stopping many places. There are some in Australia where it's being locked out, but the economics will drive it as well.