Australian LNG has a long history of pioneering investment. From the North West shelf to the first floating LNG project ever constructed.
Like other Australian commodities this history aligns with that of development economics of Asia. The first wave of Australian LNG development grew to service a modernising Japan and its demand for energy. This bilateral relationship has a long history of cordial relations, share-equity investment and oil-linked contract pricing to satisfy both parties.
The second wave of Australian LNG was far more chaotic, matching the staggeringly swift rise of the much larger Chinese economy. It began along with the pre-GFC oil boom and Malthusian assumption that the world was going to fall short of everything as the enormous Chinese and then Indian middle classes ballooned and consumed more energy per capita.
Multitudinous LNG projects were sanctioned in Australia which found itself by 2010 developing no fewer than seven LNG project simultaneously. Needless to say this did not end well with gigantic cost blowouts for all as they competed for labour and other resources.
Yet, as the commodity super cycle peaked in 2011, demand suddenly fell well short of expectations and kept doing so over the next four years. Making matters worse, the US shale revolution suddenly turned that nation from net LNG importer to net exporter of a magnitude equal to Australian LNG. The global glut from 2015 was enormous.
The Australian LNG boom included a particularly cavalier offshoot in QLD where coal seam gas was liquefied via three projects on Curtis Island. As the boom subsided, and oil-linked prices crashed, the companies involved were all either sold or destroyed.
The legacy left by the projects was one of very high Australian gas prices with very low Asian gas prices, also delivering an huge blow to the competitiveness of the east coast economy. Thus the $200bn investment proved to be the greatest single capital mis-allocation in the history of the Australian economy (and surely global energy markets) and was little more than a monument to Banana Republic economics as tax takes failed, income fell and hollowing out transpired on raised local costs.
MacroBusiness was the only analytic house to call the Australian LNG bubble early, track it and predict its demise. It continues to cover the LNG sector with daily updates and a large grain skepticism and is a must read for anyone that needs to know the economic forces coming to bear on the sector.
The LNG industry flackers have been busy. First we had Bartho telling us LNG was saved, now it’s the AFR: Pakistan, Colombia and Jordan are some of the unlikely saviours of an LNG production industry slammed by the collapse in oil prices. The three count among 2016’s new importers of natural gas transported by ship, to be followed
From Bartho yesterday: A central criticism of the surge in LNG exports as a consequence of more than $US200 billion of investment in new export plants in recent years, including the $US75bn or so invested in the three coal seam gas-to-LNG plants at Gladstone in Queensland, is that it has driven up domestic gas prices
The Big Iron rocket is punching skywards again today as Dalian adds another 1% to overnight gains: FMG is powering towards its highest intraday price since the GFC and will presumably break the closing price today: A technician would suggest an $8 target then on to the all time high. Macquarie has more on what could
From Credit Suisse comes the following assessment of east coast gas cartelier, Santos: ■ Largely uneventful result Underlying CY16 NPAT came in at US$63m, the top end of a very wide consensus range, but below our ~US$90mn estimate. The long awaited CY17 production cost guidance was relatively uneventful too, seemingly broadly flat at US$8-8.50/boe vs
From The Australian: Australians are being warned it is no longer “commercially viable” to restart one of the nation’s gas-fired power stations amid a political row over using taxpayer funds to build more coal and gas generators to prevent cuts to household electricity supplies. As political leaders sparred over whether to use coal to fill
From the AFR: BlueScope Steel chief executive Paul O’Malley says the energy costs of his booming North Star steel operations in the United States are five to 10 times lower than the firm pays in Australia as he warned of a potential energy catastrophe right across Australian industry. US president Donald Trump was intent on making US
Via the ABC: East-coast Australia’s domestic gas shortage is crippling some rural businesses, and has prompted one owner to accuse the nation’s politicians of treason. Chris Cummins, from Cowra in regional New South Wales, owns an abattoir and is about to lock in a two-year contract with his gas supplier. He told the ABC he
From The Australian: The nation’s energy market operator is under pressure to fix its operations after revealing the key failures that triggered blackouts for 90,000 customers last week, during a heatwave that has escalated a political dispute over energy security. A report into the February 8 outages raises more questions about the rules applied to
More sanity today from Do-nothing Malcolm. Via the AFR: Speculation is rife in Canberra that the federal government might contemplate some form of federal royalty regime, or other changes to resources taxation, as the need to fill a yawning hole in the budget intensifies. Mining industry representatives are thick on the ground in Parliament House
Dalian is roughly flat today after overnight gains: Big Iron is modestly up too though FMG’s possible double top still lurks: Big Gas is rebounding after OPEC minister comments supported oil: Big Gold is off. Not sure it can get much further unless Donald does something more stupid: Big Debt continues its sneaky bull market.
It’s rather suddenly an important question on a number of fronts. Goldman is seeing a big fall in US demand: …implied demand data points to US gasoline demand in January declining 460 kb/d or 5.2% year-on-year. In the absence of a base effect, such a decline has only occurred in four periods since 1960 during
The Do-nothing Turnbull government has clearly shifted from a policy of doing nothing to picking losers so that it can appear to be doing something while blaming others for it doing nothing. See housing affordability, the TPP, corporate tax cuts and, today, gas: The split between the federal and Victorian coalitions over energy policy has
An idea whose time has come, from Ross Gittins: As the feds understood full well, once you can liquefy natural gas you can ship it overseas. And once you do that you’ve taken the relatively tiny, closed eastern Australian gas market and opened it up to the huge East Asian gas market, where prices are
And quite right too, they were far too bullish: Tighter balances in 2017 but surpluses return in 2018 & 2019 We expect Brent to average $57, $56, and $61 in 2017, 2018, and 2019 respectively. The new, short cycle nature of oil supply will quickly move the market between surpluses and deficits. The cycles are
Via the AFR: Malcolm Turnbull is prepared to discuss establishing a domestic gas reserve as part of his new energy security push but his plans for clean coal power stations have suffered a blow with the industry saying there was no appetite to invest in such plants. A day after declaring the nation needed both clean