Woodside Petroleum Limited (ASX: WPL) revealed yesterday that it would be working with Indian energy conglomerate Adani to identify opportunities in the Liquefied Natural Gas (LNG) sector in India.
While the news was not accompanied by an ASX market announcement since discussions are in a very early stage, it is still an exciting potential development for shareholders.
India currently imports roughly 13 million tonnes of LNG a year at present, and demand is predicted to nearly triple to 35 million tonnes per annum over the next 10 years.
If this growth eventuates, it will naturally create huge opportunities for Woodside and other Australian LNG producers to sell into a rapidly growing market, and provide long-term tailwinds to the industry.
There are several key risks however.
Although Woodside has a considerable advantage by conducting talks with Adani already, there is likely to be significant competition in the LNG supply space, particularly from Oil Search Limited (ASX: OSH), whose 6.9 million tonne per annum LNG plant in Papua New Guinea could be a major player.
There is also the potential for substantial overseas competition from the US and elsewhere, as well as some sovereign risk regarding India's relationship with Australia and the potential for exchange rate fluctuations impacting competitiveness.
India has experienced withering criticism in the past for its determination to develop nuclear, coal and LNG power industries at a time when a significant portion of the population still lacks basic necessities like safe housing, and fresh drinking water.
Thus there is also the risk that future governments change their development priorities, or that growth in LNG demand may be stalled by slower-than-expected rises in the standard of living.
All in all however these initial talks are a very positive sign for Australia's LNG producers, and Woodside and Oil Search are two major players that could definitely benefit from growing demand for their product.
