Woodside’s decision to invest in gas exploration off the coast of Israel does raise eyebrows initially, but when given deeper thought, it fits within a very sensible plan. With recent east coast LNG projects facing huge cost blowouts, Woodside’s North West Australian portfolio is finally starting to highlight the premium it deserves. Woodside is by far our preferred energy exposure, not just in Australia but across the Asia Pacific region where it has its dominance reaffirmed for many decades to come. It might soon become a preferred global exposure to many investors.
The US$696m investment in what is largely a prospect off the coast of Israel in the Mediterranean is not as high risk as it seems. Hamas rockets are not a threat, the fields are offshore and remote. The payments from Woodside are phased based on important milestones – legal and geological. It will partner with Noble Group who will assume responsibility for the often tedious upstream duties. Woodside will earn a royalty as gas is sold into the domestic market. But the big prize will be Woodside operating any LNG development.
This will make Woodside one of the most sought after strategic players in energy markets as Western European nations finally find practical diversifications solutions to over-reliant Russian energy. Vladimir Putin – take note.
Bottom line: If the Leviathan field progresses into development post drilling, Woodside will be on the doorstep of many hungry European nations willing to sign long term supply agreements. It knows how to develop LNG terminals, with Pluto a great precedent. For example, Ukraine President Viktor Yanukovich said only last week that his country hopes to commence LNG shipments by early 2015. The gas will come from Qatar which requires shipments to move through the Strait of Hormuz – a corridor which could shut down if war was to break out with Iran. Israel provides access to the Mediterranean – co shared by most of Southern Europe.
Germany’s recent shift away from nuclear energy is seeing it add more coal fired power stations – in the end the only choice it has if it wants to power its economy. But LNG provides an alternative. Wind and solar can only deliver so much.