‘Relationships with local communities and governments require continuous improvement’
In this exclusive Q&A with Critical Resource, CEO and Managing Director of Woodside Peter Coleman talks about how geopolitics is impacting oil supply, discusses what high oil prices could mean for the industry, and explains how the license to operate requires continuous improvement.
Peter Coleman joined Woodside in 2011 as CEO and Managing Director. He previously worked with the ExxonMobil Group, where he was Vice President Development Company and led development and project work in the Asia-Pacific region. He is also an Adjunct Professor in Corporate Strategy at the University of Western Australia.
Please note that this interview was conducted in October 2018 and so discusses market conditions at that time.
Peter Coleman
Geopolitics is again impacting global supply: we’re back to normal
“The geopolitical factors that impact crude oil supply appear to be back to normal levels. We went through a couple of years where supply outages caused by geopolitical factors were actually unusually low. For example, the Middle East in general was relatively stable – there was no conflict in Libya, and Iraq had come back into the market and was basically producing at full capacity for a period of time. As a result, the volumes of oil that were missing from the market due to geopolitical events such as conflict or sanctions had dropped to a low. We may have come to think of this as the new normal but, on the contrary, what we’ve been seeing recently in terms of geopolitics taking big volumes of crude oil out of the market, for example with Venezuela or with US sanctions on Iran, reflects that we are back to normal.”
A return to higher oil prices could risk destroying demand
“We can enjoy elevated crude oil prices, like the ones we saw in Q3 2018, for short periods of time – but then they become a little concerning because we don’t know what the ripple effects will be. For example, while we are expecting consumer demand to grow over the next few years, higher prices could end up destroying it in the long term. Any sustained period of elevated prices due to geopolitical events could further catalyse this development. We are also reaching an inflection point in the market as more renewables and electric vehicles are coming in. Although it is unlikely that we will see electric vehicles displacing internal combustion engines immediately, even temporarily-elevated crude oil prices could offer policymakers a window of opportunity to accelerate the move to different energy sources. We may not see these unintended consequences of high prices today, but it is possible that the ripple effect has already started.”
We’re asking how we set ourselves up for a potential energy transition
“We all agree that the world needs to become a greener place, and that’s where we want to get to; we want to reduce our carbon footprint. So we’re asking: how do we set ourselves up for a potential transition and what does that look like? The first thing is to look at how we can be more carbon-efficient in the way that we manufacture LNG, including through a larger mix of renewables as part of the power going into our facilities. The second is looking at the product we produce. At the moment we transport our product as LNG but one of the options we’re looking at in the long term is what the real potential of ‘blue hydrogen’ could be, i.e. reforming methane into hydrogen.
When it comes to the climate change debate, one question that is often overlooked is how we will provide access to affordable energy to an estimated additional one billion people in the world over the next few years. Renewables are great if you’ve got lots of sun, wind or water – not every country, however, is blessed with that endowment. Meanwhile, gas has a very important role to play as the world tries to reduce its carbon footprint. It’s very clear that if you just converted coal-fired power stations to gas worldwide, you’d have a step change in emissions. So gas shouldn’t, in my view, be demonised and put in the same bucket as other fossil fuels – it’s part of the solution as more of the world, including the extra billion people, want access to modern energy sources.”
The disconnect between energy users and producers is leading to increased political risk
“Geopolitical risk for the energy industry today generally seems to originate in countries that do not have a significant resource endowment. It’s starting in these countries because it’s easy for politicians to turn against an industry that they don’t have – there are no political consequences in terms of job losses for example. There is this view that you can just flick a switch to a different power mix, but it simply doesn’t work that way – we need to manage the energy transition in a very thoughtful and careful way. We also need to remember that energy often comes from countries that do not have diversified, well-developed economies, so these are extraordinarily impactful decisions that are being made on behalf of energy users and to the detriment of people in energy-producing countries. There therefore needs to be a reasonable, balanced conversation about what sort of energy is needed, and the economic, social and environmental cost of this, remembering that each decision has a cause and effect.”
Relationships with local communities and governments require continuous improvement
“In our business, we usually talk about continuous improvement in terms of driving operating costs down and operating our business more efficiently. However, it’s not just about applying best practice to the part of the business that generates revenue, but also applying it to the part of the business that gives us the social license so that we can go and operate our facilities in the way we want to every day. In other words, continuous improvement should also apply to relationships with local communities and governments. There is a natural maturity and evolution of community and government expectations over time, so what was good enough 10 years ago might no longer be best practice today, and we shouldn’t expect it to be. Applying best practice is not an impediment – it’s often a challenge, but it’s one that betters us as a company.”