Crude reality: Oil giants split on fossil fuels' future

  • Aug 01, 2020
  • Sydney Morning Herald

On a blue-sky March day, one week after the World Health Organisation declared the pandemic, a nearly 300-metre-long tanker set sail from Chevron's Wheatstone project on the coast of Western Australia carrying a cargo of liquefied natural gas. The gas on board had been super-chilled: first to minus 130 degrees – the point at which it flashes over to a liquid – then even further to minus 162 degrees.

Like almost all tankers leaving Australia loaded with liquefied gas, this vessel, the British Mentor, would usually have been bound for a port somewhere in North Asia – Japan, China, South Korea – where its contents would be regasified, put into pipelines and sent to customers for power generation, heating and manufacturing.

Instead, it would spend the next two weeks idling at sea, either anchored in the sparkling Indian Ocean or sailing around in circles. And finally, after finding a new buyer, it set off on a highly unusual voyage crossing the entire South Pacific to Manzanillo, Mexico, 15,000 kilometres away.

Australia's big producers of liquefied natural gas (LNG) – the nation's second largest commodity export – have been hit hard by the coronavirus pandemic, and the story of the stranded British Mentor is far from isolated.

As lockdown restrictions wipe fuel demand and buyers delay deliveries, the number of LNG cargoes loaded in Australia last month fell from 93 to 85, according to EnergyQuest, and, of those, one in three was forced to spend extended periods idling at sea.

No one in the industry disputes the magnitude of the crisis pummelling oil and gas right now, or that the shock will be felt for years. BP and Shell responded first, radically reducing future price assumptions causing write-downs of up to $54 billion combined. In Australia, Woodside wrote off $6.3 billion, Origin $1.2 billion and Santos $1.1 billion. Oil Search slashed $500 million and axed a third of its workforce. Most producers significantly lowered their forecasts for benchmark Brent oil and LNG – which is tied to the oil price – out to 2025-26.