Lower oil prices aren’t necessarily denting energy companies’ returns any more, Woodside CEO Peter Coleman said on Monday at the Credit Suisse Asian Investment Conference in Hong Kong.
“What drives prices? It’s supply and demand, but it’s also cost of the supply coming into the market place,” Coleman said. “So if you take a positive out of the last few years of lower prices, costs of supply have gone down. The US$65 Brent that we see today is kind of the new $80 that we may have seen three or four years ago.”
He said that margins are coming back and he’s seeing “reasonably acceptable rates of return.”
But oil may not be where the fireworks are.
LNG set for volatility?
Coleman instead pointed to LNG as set for “volatility to the upside.”
“Demand is taking off,” he said. “We’ve not seen real demand in Asia, in my view, for many years because of a monopolistic position held by state-owned enterprises. Those enterprises have held back, in my view, about 40 percent latent demand in many markets. That demand is being opened up as those monopolies have been broken up and their supply has been broken down.”
But while demand growth isn’t an issue, “the problem is there’s no new supply,” after about this time next year, he said.
With lead time to add new supply around five years, any policy changes, even small ones, could goose demand, Coleman noted.