Australia’s largest independent natural gas and oil producers honed in on optimizing value for LNG exports and progressing gas field development projects in the second quarter while navigating domestic supply shortages.

The recently renamed Woodside Energy Group Ltd. and Santos Ltd. both reported continued elevated pricing for liquefied natural gas (LNG) despite demand destruction in Asia and steady production.

More Gas from Pluto

Woodside CEO Meg O’Neill said the company’s LNG production gained a boost during the second quarter, thanks to “accelerated Pluto gas transported through the Pluto-Karratha Gas Plant Interconnector.” Woodside recorded LNG production from Australian assets of 19.8 million boe in 2Q2022, up from 18 million boe year/year. LNG production was 16.3 million boe in 1Q2022.

In general, Woodside reported its production levels had significantly ballooned across the board with the conversion of the BHP Group portfolio gained from its merger. The merger was officially completed in June. Woodside’s combined production volumes reached 37.8 million boe in 2Q2022, compared to 22.7 million boe in the year-prior period. Combined production was 21.1 million boe in 1Q2022.

The added gas from the Pluto project also helped grow LNG sales volumes by supplying “uncontracted cargoes” for a “high-priced market,” O’Neill said. Woodside sold 18.2 million boe in LNG from its Australian assets in 2Q2022, up year/year from 18 million boe. LNG sales volumes in 1Q2022 were 17 million boe Woodside didn’t report sales revenue by product.

Woodside fetched an average 2Q2022 realized LNG price of $13.80/MMBtu, up year/year from $7.30/MMBtu. The average realized LNG price was slightly higher in 1Q2022 at $14.60/MMBtu.

Woodside is also protecting against potential “downside pricing risk” by hedging its future contracted volumes from Cheniere Energy Inc.’s Corpus Christi LNG with Henry Hub and Title Transfer Facility (TTF) commodity swaps. Around  94% of Corpus Christi volumes in 2022, 73% in 2023 and 27% in 2024 have been covered with hedges, according to the company.

Woodside also reported the Lambert Deep component of its Greater Western Flank Phase 3 project was ready for start-up. The projects involve drilling wells and creating an additional subsea tieback to tap an estimated 400 Bcf of gas reserves in the Northwest Shelf offshore Western Australia. Woodside is the operator in the project with BP plc, Chevron Corp., Japan Australia LNG, Shell plc and China National Offshore Oil Corp. as partners.

Elsewhere, in Africa, Woodside has decided to end efforts to sell equity stakes in the Sangomar Field Development project. The field, formerly known as SNE, is located offshore of West Africa in the coastal waters of Senegal and contains both gas and oil reserves. O’Neill said the decision came after “extensive discussions with potential new partners.”

Addressing Domestic Needs

Despite slightly reduced volumes and sales during the second quarter, Santos reported the last three months helped it reach a record first half of the year for production, sales revenue and free cash flow.

The company was positioned to take advantage of forecasted demand growth from Asia over the next few years, but it also needed to focus on domestic customers’ near-term needs, said Santos’ CEO Kevin Gallagher 

He said the company “supported the domestic gas market during a period of extreme demand by diverting gas” from the Golar LNG terminal and committing a fifth drilling rig in the onshore Cooper Basin.

“Despite the period of price and demand volatility, Santos domestic gas customers paid significantly less than that paid by international customers,” Gallagher said.

While LNG exports have continued to remain sky high from Australia, the country has also been dealing with regional domestic shortages. Differing gas conservation policies between East and West Australia have complicated the issue as domestic customers and regulators question the costs of LNG exports.

On Tuesday,  the Australian Energy Market Operator requested LNG exporters make more volumes available for the country’s southern states as reserves in Victoria dip to unprecedented levels.

Santos produced 1.4 million tons (Mt) of LNG in 2Q2022 compared to 987,000 Mt in the year-prior period. LNG production was slightly down compared to the previous quarter’s total of 1.5 Mt. Combined production was reported at 25.5 million boe during 2Q2022, compared with 22.5 million boe in the year-prior period. Combined production was also slightly down from 1Q2022’s total of 26 million boe. 

Santos sold 1.4 Mt of LNG in 2Q2022 compared to 1.1 million Mt in the year-prior period. It sold 1.5 Mt in 1Q2022. Sales revenue from LNG came in at $1.1 million, compared to $421,000 in the year prior. LNG sales revenue was also slightly down from the previous quarter’s $1.1 million.

Santos disclosed that LNG volumes and related revenues decreased during the quarter mostly due to declining production from the Bayu-Undan field, which is anticipated to cease production later in the year.

Santos saw an average realized LNG price of $14.66/MMBtu in 2Q2022, almost double the $7.52/MMBtu it fetched year/year. It earned $13.77/MMBtu for LNG in 1Q2022. Santos attributed the price boost to “linkage of sales contracts to an improving lagged Japan Customs-cleared Crude (JCC) price.” The strategy helped offset “lower average JKM spot prices,” according to the company.

Neither Woodside nor Santos disclosed net income or loss results in their 2Q2022 reports. Both companies promised more definitive financial information in their upcoming half-year reports.