Woodside Petroleum : 14.07.2017 Speech - CEO World Petroleum Congress Speech 13 July 2017

In considering our Strategies for a New Reality, we first need to think about what has changed in global energy markets and what change is still to come. What are the defining features of the "New Reality"?

Within the world of oil and gas, market dynamics are always shifting and we have in recent years seen some interesting developments in both supply and demand that are shaping our business environment.

On the supply side, it's a world where we have moved from scarcity to abundance. The advent of shale and unconventional gas has been a game-changer in the industry, bringing the oil cost curve down. For LNG, the boost in supply has been underpinned by an increase in production in Australia and the start-up of exports from the Gulf of Mexico, something that was not in anybody's forecast 10 years ago.

The volume of LNG traded globally is increasing and the flexibility of that global LNG trade is fundamentally changing as we see market dynamics affect shipping, contract sizes and the number of countries we are dealing with.

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Of course, increased supply has an impact on prices. Producers are never thrilled by lower prices, but the good news is that the availability and affordability of gas is further fueling growth in demand.

It's a world that clearly has a desire for more gas in its energy mix as countries strive to reduce emissions, not just for pollution but also for the health of their citizens and the affordability of energy.

We need to think about our place in the broader global energy mix, and acknowledge that a change is underway with the rise of renewables, opening up both challenges and opportunities.

The economic rationalists amongst us always like to say it's difficult to see how renewables come into the marketplace. But those countries that are not rich in resources but are users of energy are often motivated, whether for geopolitical or social reasons, to

make or incentivize investments that may not make the grade when it comes to investment return. But it's a social investment return that goes beyond normal economics we consider as we make our investments.

I'll talk shortly about what strategies we can deploy in response to the shifts in supply and demand but, first, let's consider how we should approach the rise of renewables and the changing mix of energy globally.

It is important that there is an honest debate about the strengths and weaknesses of energy sources. It's fair to say that coal will remain a very important fuel in the energy mix but its exponential growth is slowing. It is unlikely to be a growing part of the market.

Renewables are starting from a low base but are increasingly making inroads into energy markets, particularly for power generation. We can't afford to ignore that. They are making tremendous inroads into the minds of consumers, who are making choices every day.

This competition has been building for some time, but it's only in recent years that governments have begun to make significant investments in renewables.

In my home country of Australia, we have seen rapid growth in renewables in recent years. We are a country that is blessed by an endowment natural resources, not only of hydrocarbons but also of solar and to a lesser extent hydro. We've seen this debate occurring at a state level in Australia. Our federal system doesn't allow federal control of our energy mix so decisions are made at a state level. In recent times, we've seen the rise of renewables in the power sector causing significant disruption because people have forgotten what baseload generation means and the interconnectivity of each of the systems. It's to the point where we are on the cusp of becoming the largest LNG exporter in the world and yet there are conversations about having a regasification facility installed on the east coast because we haven't got our power system right.

This variability of renewable power was highlighted by a recent report to the Australian Government by Chief Scientist Alan Finkel. He recommends a new approach is needed to mitigate this variability. His proposed solution is the introduction of a Generator Reliability Obligation that would require new generators to ensure they can provide dispatchable power as required.

These sorts of ideas present an opportunity for gas-fired power to complement renewable generation. Battery technology will continue to develop - it has some limitations - and the reality is that renewables will need to partner with another source of energy source and gas is the prime energy source for that partnership.

The rise of renewables and heightened climate concerns also underline how important it is for oil and gas producers to be part of the social debate about the future energy mix. As uncomfortable as it may sometimes be for oil and gas producers, we need to be conscious of how we develop resources in a carbon-constrained world. We need to contribute to not only the social debate but also the solution.

For governments, the temptation is to impose carbon taxes but carbon taxes are just going to be a leakage out of the system unless they are garnered and it is ensured they go into supplying reliable power. In addition to being part of the social debate, it is also incumbent upon us to demonstrate we are responsible operators and are aware of our obligations as stewards of the environment.

It's a fair assumption that renewables will account for a growing share of our energy mix. But the world's energy needs will continue to rise and the market will continue to need hydrocarbons for at least the foreseeable future.

I've already mentioned some of the recent changes in market dynamics. In light of these, we need to rethink our strategies for marketing our product and for financing future developments.