The Woodside Petroleum Limited (ASX:WPL) share price took a hit today when it announced a fall in its half-year results. However, the big LNG producer is still laser focused on the long-term and could start construction on what has been dubbed "the Tesla of LNG plants" as early as 2022.
Changing the game with the "the Tesla of LNG plants"
Woodside, along with 50% joint venture partner Chevron, last month issued a new design for the monster Kitimat LNG plant in Canada, which will increase production capacity while substantially reducing costs.
As you might suspect, LNG plants use a lot of power to cool natural gas to around -162° Celsius and compress it into liquid. Historically, the plants have used huge gas-powered turbines for this job which requires fuel storage as well as producing hefty carbon emissions.
The latest design for the Kitimat Project includes an all-electric plant using electronic drives (e-drives) to be powered by renewable hydroelectricity. This is a step-change for large-scale LNG plants and Chevron vice-president of public affairs Rod Maier has labelled it "the Tesla of LNG plants."
Above: Traditional gas turbine driver vs Siemens 'e-drive'. Source: Siemens 2018 presentation.
E-drives are used in some small- to mid-scale LNG plants today, but a fully electric plant design supported by hydroelectricity would be a game changer for a project the scale of Kitimat LNG.
So what?
The e-drive, hydroelectric combination allows for "substantial reductions in LNG unit costs, execution risk, and emissions", according to the design application.
For some idea on the potential cost reductions, industrial manufacturing company Siemens estimates that its electric drives cost 86% less in hourly maintenance than gas turbines and can be operational for up to six years without scheduled maintenance. Gas turbines need scheduled maintenance every 2 years which can take the plant off-line for up to 21 days.
What now?
In my view, the new Kitimat design significantly enhances the attraction of the 40-year project.
The introduction of an all-electric plant, combined with an increase in production capacity, looks set to improve the project's costs, schedule and execution – the three horsemen required for a winning long-term LNG project.
Final investment decision on Kitimat is currently scheduled for 2023. In the meantime Woodside is likely to continue generate strong cash flows, which currently support a dividend with a juicy 5.9% yield.
