00:00It's amazing to think that LNG prices have doubled since the start of the Iran war.
00:05I mean, this is a fuel that's so critical to a lot of emerging markets in this part of the
00:10world.
00:10Take us through the short and long-term impact of prices at such a high level.
00:17Yeah, Hustlinda, I think you're absolutely right.
00:19The situation in the Middle East is really pointing out how globally interconnected we are as a market.
00:24A conflict in one region is rippling through the global economy in terms of supply constraints and price spikes.
00:32And especially in a place like Asia that relies so much on imports, certainly it is a concern for the
00:38economy.
00:39In the short term, we will continue to see some demand adjustments that adjust to the reality of the supply
00:46constraints and the affordability of energy.
00:49However, in the long term, the fundamentals, particularly for LNG, still remains very strong.
00:54You know, it is driven by population growth, the need for power for electrification, with AI and data centers being
01:01another new demand on the horizon.
01:04All of these things are going to point to a very strong demand for LNG.
01:08Do you expect demand destruction in the short term because of where prices are?
01:12Absolutely. Demand has to adjust.
01:14You know, right now, I would say, you know, depending on where you are in the world, I think the
01:19demand adjustment is different.
01:21I would certainly say in places like Asia where there are some alternatives available, we are continuing to see countries
01:27shift to more affordable alternatives to meet the basic demands of the people.
01:33And in some places where they don't have alternatives, they have to actually cut back on demand.
01:37I wonder if LNG can still be seen as a reliable fuel for emerging markets, because 10 years ago, a
01:45lot of emerging markets went for LNG because it was a cheaper alternative.
01:49It was also in abundance. It's no longer the case.
01:53Right now, I think the geopolitical constraint is what holding LNG back.
01:57In fact, before the Middle East conflict, we were supposed to be in an LNG surplus by end of this
02:04decade.
02:04So the resource is still there.
02:06It is shifted to the right, given some of the geopolitical challenges and the tensions that we are seeing in
02:13the Middle East region.
02:14But we are seeing more supply coming online from the U.S. Gulf Coast.
02:19There is more potential LNG projects that's debated, actually being evaluated in South America.
02:25We have some LNG positions in Africa.
02:27And, of course, the foundation for all of these things is Australia LNG, which has been a long, reliable source
02:33to this region.
02:34Before we get to the source in Australia, I'm just wondering if customers are now looking for longer-term contracts
02:41for security, for energy security.
02:43It's interesting you mentioned that a few years ago, some of the customers were not interested in long-term contracts.
02:50In fact, it was hard to sell a five-year contract because everybody thought the energy transition is going to
02:56go faster than expected.
02:57But the reality is our energy system is massive.
03:00It takes years to build infrastructure.
03:02And energy demand has been continuing to go up.
03:05So it has very much been an energy addition story.
03:08What we are now seeing, Haslinda, is energy security is on top of mind.
03:12And people can't have enough of long-term LNG contracts.
03:16And, frankly, our Japanese customers who have had this long-term vision are very thankful for us to continue to
03:22supply into those long-term contracts.
03:24So we're talking about 10-year contracts, 20-, 30-year contracts.
03:27What are they looking for?
03:28Yeah, our contracts are 20 years in length.
03:30And, again, just for context, our Japanese customers underwrote those massive investments that we made in Australia.
03:38And, again, they had the strategic foresight and the policy and commercial certainty that made these long-term contracts happen.
03:45And, again, in turn, now we are able to provide energy security, especially in time of need.
03:50Emerging markets in Asia, particularly Southeast Asia, have been very reliant on the Qatari supplies.
03:58We've seen a shortage of that.
03:59Are you seeing, I guess, rising interest in Australian LNG supplies?
04:06Yes, certainly Australian LNG is of premium right now, just given how geographically advantaged Australia is to supply to this
04:14market.
04:15And certainly we have two world-class assets in Australia, in Gogan and Wheatstone.
04:21And we have been focused on operating them safely and reliably, particularly because we know those molecules are more important
04:27than ever.
04:28And we have been, over the last 10 years, we have managed to not only operate them at top quartile
04:34reliability, but also put more through the facility.
04:37We are nearly 10% higher than our basis for investment back almost 10 years ago.
04:44And our customers, again, can't have enough of Australia LNG.
04:48So are you looking to ramp up even more at the two assets?
04:51You know, currently our facilities are at their max.
04:54So we are really focused on making investments to continue to keep that gas supply up.
05:00And Hustlanda, you know our industry really well.
05:02Our assets decline with time.
05:03So we have to make that continuous investments to keep up that supply.
05:07We have two projects that are under construction right now.
05:10One is a subsea compression project.
05:13And this is one of the world's pioneering developments.
05:16We have a subsea compressor that is six times bigger and six times in six times deeper waters than anything
05:24that has been done before.
05:25And that's not only going to add more gas supply in the near term, but also going to bring infrastructure
05:31that is going to be critical for our future backfills.
05:34And these backfills are critical for Chevron portfolio, but also for the energy security of the region.
05:39Speaking of supplies, might you be catering to the power needed for AI?
05:45Because Australia is ground zero for data centers.
05:49How are you thinking about, you know, helping to power those data centers?
05:53Or not?
05:54Well, data centers are going to be a very, very key aspect of our gas demand growth and energy demand
06:00growth, broadly speaking.
06:01But certainly gas being a more reliable source of energy and, you know, dispatchable source of energy, I think that
06:09is going to underpin a lot of the demand growth around the world.
06:12And you may have seen this in the news.
06:14In the U.S., we recently announced a deal with Microsoft to build a behind-the-meter data solution, which
06:21is really going to be one of the largest data centers, power demand, or power sources for data center in
06:30West Texas.
06:30And certainly those opportunities exist in Australia.
06:33We haven't, as a company, quite considered it yet, but that's certainly possible given the vast resource that Australia has.
06:41Might you make a decision after the next, what, 12, 24 months?
06:45Yeah, right now, currently, we are not evaluating any opportunities, but certainly this is the first one that we are
06:51doing as a company.
06:52And we are continuing to evaluate those sort of opportunities.
06:55In fact, we are getting into second one of those conversations in the U.S. where the demand center conversations
07:01have been more advanced than in Australia.
07:04But certainly, given our core position in Australia, I would not rule it out.
07:08Balaji, I'd be remiss not to ask you for your projection for prices.
07:11Of course, it's hard to project right now, but prices have already doubled.
07:15LNG prices, spot prices have doubled since the start of the war.
07:19Where might prices be headed?
07:21Certainly, I wouldn't try to predict prices, especially in this environment, Haslinda.
07:25What we are really seeing is, before conflict for crude oil markets, again, we were in excess supply.
07:31And OPEC was taking supplies off the market to keep the market balanced.
07:36And, of course, the conflict over the last six months have drawn down the buffers that we have had in
07:42terms of storage inventories around the world.
07:43And even that is true for gas inventories.
07:47So that's the price effect that we are seeing now, is the market is very volatile and reacting to headlines.
07:54And as I look forward in the next six months or so, I have a hard time seeing the prices
08:01come down quite a bit.
08:02There is probably going to be risk more to the upside.
08:05But like I mentioned, in the long run, there is plenty of supply, both in the crude markets and LNG,
08:11projects that is being in development.
08:14So I do think that demand for oil and gas still remains strong.
08:18All right, we have to live with that.
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