Perth-based Woodside Petroleum Ltd. signaled Wednesday that it will give no ground on taking its Australian natural gas resources to global markets after securing a supply deal with a top German power generator.

Under a heads of agreement inked at the Gastech 2019 conference in Houston, Woodside Energy Trading Singapore Pte Ltd. agreed to supply Uniper Global Commodities an increasing amount of natural gas over 13 years, with up to 0.5 million metric tons/year (mmty) beginning in 2021 and increasing to around 1 mmty in 2025.

A finalized sale and purchase agreement hinges on Woodside sanctioning the Scarborough gas project, which would feed a new 5 mmty train at the Pluto LNG plant in Western Australia. Pluto  now has a liquefaction capacity of 4.9 mmty.

In January, Woodside awarded four contracts for front-end engineering design activities for the project related to the upstream development’s floating production unit, the export trunkline and the subsea umbilical risers and flowlines.

The targeted final investment decision (FID) for Scarborough is set for sometime next year, with first gas to be achieved by 2023. The gas field is estimated to contain 7.3 Tcf of resource.

Uniper, which supplies power generation to German markets, as well as the UK, Sweden, the Netherlands and Russia, is one of the partners funding the Nord Stream 2 gas pipeline, which would feed supply to European markets. Nord Stream is a joint venture led by Russia’s Gazprom and other partners include Austria's OMV AG, France's Engie,  Wintershall Holding GmbH and Royal Dutch Shell plc.

Last March, Germany authorized Nord Stream, which would have 1.94 Tcf of transport capacity and run 759 miles under the Baltic Sea. The pipeline, which could begin service near the end of 2020, would connect the Russian port of Ust-Luga, near St. Petersburg, to Greifswald in northeastern Germany.

However, in response to European energy security concerns over Nord Stream 2 from the United States, including sanctions threats against Russia, several German companies including Uniper have been striking LNG supply deals and building up infrastructure.

Germany plans to build at least four LNG import terminals by 2023 to help diversify its supply from decades-long reliance on Russian pipeline gas. Both the United States and Qatar, the world’s leading LNG producer, also are keen on locking in mid and long-term LNG offtake deals with German companies.

Earlier this year Germany approved a plan making it easier for LNG project companies to invest in LNG import terminals. Under the legislation, LNG companies pay a 10% share of the connection costs for LNG, giving them more incentive to invest in projects.

Global Gas Glut

For Australia, the timing of its Scarborough gas project, earmarked to increase liquefaction capacity at its Pluto LNG project, comes amid a historic supply overhang in global markets, which have seen prices for spot LNG in the Asia Pacific region recently dip below the $4/MMBtu price point, at least a three-year low.

As spot prices for the fuel drop below long-term contract prices, legacy buyers of the fuel, notably Japan, South Korea and India, are seeking contract renegotiations for existing long-term offtake deals.

An unprecedented number of LNG projects worldwide are slated to reach FIDs over the next few years. There are at least 14 more U.S. and Canadian LNG projects slated to take FID between now and in 2020 joined by large projects in Australia, Mozambique, Russia and Qatar.