Gas glut gloom

Two reports from The Cupboard today put a lot of gloom in the gas Futureboom!

The most recent report has Woodside delaying a $40billion LNG plant near Broome, pushing the start date on production back to 2018, albeit because of an “aggressive timetable”:

Woodside’s Petroleum’s request to delay a decision on a $40 billion LNG plant at James Price Point near Broome has been granted, as the federal and West Australian governments admit the aggressive timetable pushed by former Woodside chief executive Don Voelte and imposed by the governments cannot be met.

In December 2011, new Woodside CEO Peter Coleman and his four joint-venture partners in the Browse LNG fields, off the coast of WA, asked the governments to relax conditions that the joint venture had to be ready to make a final investment decision on development by the middle of this year.

Instead, the partners said they might need until the first half of 2013. Today, they were granted the request.

However it was the first report this morning that dealt the real blow, with LNG export growth and project expansion under dual threats from a US domestic supply glut and from Asian buyers wanting to move to the much cheaper US gas prices instead of Aussie LNG contracts:

AUSTRALIA’S liquefied natural gas export growth is being threatened by a continued slide in US natural gas prices that is making North American LNG projects more appealing and is set to weigh on global gas export pricing.

The continuing drop in prices comes as Britain’s BG Group puts a greater emphasis on US exports than an expansion of its $20 billion Queensland Curtis LNG plant as a way to meet its medium-term LNG volume targets.

The article mentioned the fall in natural gas prices in the US, which is indeed plummeting like a stone, down 50% since BHP bought US shale gas outfit Petrohawk – another instance of bad timing for the Big Mostly Owned by non-Australians:

The Unconventional Economist was prescient in highlighting the risk inherent in the ebullient price and volume assumptions in economic forecasts, with his analysis on bulk commodity prices recently:

The one unquestionably positive story in the BREE release is that of gas with, as the table above shows, a trebling of LNG export earnings to $30 billion. This is based on the real story of today’s huge gas investments in WA and QLD:

As of February 2012, 14 liquefaction projects were committed or under construction around the world, eight of which are located in Australia. Australia LNG liquefaction capacity is projected to increase four fold over the outlook period to total 85 million tonnes in 2017. Most of this additional capacity is scheduled to come online after 2014.

That’s some pretty eye-popping factoids and will undoubtedly support the Australian economy’s balance of payments position into the future.

But there is still a question over BREE’s assessment of LNG price. The tripling in exports is met with little fall in the regional prices. That is again questionable given the price disparity that currently exists between North American gas and North Asian which is very likely to push our US and Canadian cousins to accelerate their push into highly profitable shale gas exports:

BREE itself admits that it does not yet incorporate any influence from such increased supply (though it offers a quite useful assessment of where current liquifaction plans are at, including 8 planned projects that would swamp Australian supply).

It’s a delicate dance this official forecasting.

Indeed. Dancing on a tightrope with each end beholden to markets beyond our shores.

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  1. ‘Dancing on a tightrope’ ‘beholden to markets beyond our shores.’ Welcome to resources! Woodside is opting for the prudent path given present circumstances.

    Sadly, advocates of TAI policy will no doubt welcome this ‘slowing’ of projects related to the boom.

    Recently I linked an interesting article on the inconsistencies in the natural gas v shale play, along the lines (but more comprehensive) of this slightly older TAE article. A fellow MB reader was prompted to remark, ‘smart money’ on natural gas. I concur. Wait and see.

  2. We’re investing more in LNG than just about anything, and yet we will never be a low-cost producer of LNG. The Gulf states can easily undercut us.

    Asian buyers wanting to move to the much cheaper US gas prices instead of Aussie LNG contracts

    But, but … the MineBot told me just weeks ago we were protected by these contracts! Surely Asian buyers won’t just walk and buy gas from the cheapest supplier? Isn’t it in Asia’s interests to pay Australians the highest price possible?

    • Oi. I never said we were protected. I simply said we have contracts in place. Although these contracts are in the main with countries that honour contractural obligations.

      • Honour has no place in business and is an artefact of the Victorian Public school ethos along with chivalry. After the slaughter of the silver spoon class in WW1 the notion that honour is worthwhile was debunked it is all about winning! 😉

  3. I wonder if total and inpex are having second thoughts on building icthys…if off take agreements are reneged in favour of US gas it would collapse Darwin property values

  4. It will be interesting to see how much longer the downward trend in US gas prices can continue. Current low prices are sure to generate substantial extra demand, with gas being substituted for coal in US power generation particularly. Power companies are likely to want long term guaranteed continuity of supply, which encourages long term contracts usually at higher prices.

    • oil boom bust cycles last around 10 years. we are barely half way through this bust. lots of marginal players already on the ropes though, only the strong will survive and even they will get swallowed.

  5. “The continuing drop in prices comes as Britain’s BG Group puts a greater emphasis on US exports than an expansion of its $20 billion Queensland Curtis LNG plant as a way to meet its medium-term LNG volume targets.”

    So the LNG boom that is destroying the lives of significant numbers of people here who aren’t lucky enough to be employed by the resource sector here in Gladstone may not be as long as projected? Terrible shame.

    That said, I have a mate who works on the Curtis island LNG project (a long term local resident, not a FIFO) who would lose out in that event.

  6. There was a report on CNBC last week that the mild winter had resulted in a build up of gas stock and therefore that was one reason there was a fall in gas prices and that one shd expect price fluctuations.
    Interesting was the comment about the use of gas in both light and heavy duty vehicles and the planned test development of gas filling points along some highways.
    Something we shd do here, not just give money to ford and holden to provide us with same old cars based on their European models, now called ‘global platforms’.

  7. Gas glut? 100 years supply?
    Gas reserves to producion in the US is still a fairly dismal 13 years, and they still consume more gas then they produce.

    Note I have used billion cubic metres throughout-
    In 2000, proved reserves 5000bcm, production 543bcm, consumption 661bcm, reserves to production 9.2 years

    In 2010, proved reserves 7700bcm, production 611bcm, consumption 683bcm, reserves to production 12.6 years

    Granted shale gas is now being exploited in the US and this has added to proven gas reserves.

    If the US could export LNG maybe they could get substantially better value. But why are US LNG exports still dismally low? What are they waiting for?

    Finally does anyone know what price Australian LNG requires to be economically viable? And how much will it cost to produce?

    • energyquest and MBA petcon (AWT now) have good publicly available information, so do most of major gentailers. need around $3.50/GJ for domestic generation, LNG price is anyones guess now (australia is too expensive!!)

      US has no export capacity. that will change. will send through canada and mexico in the meantime.

    • So with 1MBtu approx equal to 1GJ then Australia needs approx $3.50/MBtu for domestic LNG generation. Which it seems only the Germans, Japanese and British would be happy to pay for…

      I fail to see how increasing US exports could swamp new Australian LNG. Sure it might make our gas look less attractive. But remember the US still consumes more gas then they produce! If they were to start exporting gas as LNG then their gas prices would have to converge with global LNG prices, and might ease the high prices being paid by the Japanese and Europeans.

      Also note that the International Energy Agency (IEA) is counting on growing LNG production to offset declines in conventional oil production by the end of the decade. So I think it’s more important to gage how LNG is being adopted as a transport fuel rather than obsess about a supposed US gas glut. Call it a gas glut when they produce enough to support themselves and say Japan.