IEA: Nobody will invest in Australian LNG

From the AFR:

US natural gas prices could rise by more than half and LNG exports would still match up economically against supplies from traditional shippers to Japan such as Australia, according to the International Energy Agency’s head of global gas markets research.

Speaking in Sydney on Thursday, Anne-Sophie Corbeau, senior gas analyst at the Paris-based IEA, said that LNG exports from the US would be “competitive” in north Asia with US benchmark gas prices of up to $US7 per million British thermal units.

The forecast sounds a warning for producers in higher-cost supply countries such as Australia, which will face increasing competition from the many LNG export terminal projects being developed on the US Gulf Coast.

…“I don’t know who is going to invest in new liquefaction projects in Australia,” she said.

This is not new, or news, really, as I noted in my LNG special report four months ago:

In that event, the International Energy Agency (IEA) projects that its local gas price will rise to $7 eventually, so more projects are a reasonable bet. The IEA also reckons that the widening of the Panama Canal plus increasing efficiencies in US gasification could push its production cost component down further, meaning higher volumes are possible without rising breakeven costs.

Thus, if the US pushes its export production towards 100mpta then the IEA sees the impact on North Asian prices shown in Chart 4. Follow the solid purple line. It falls right down to the $12 breakeven point for Australian projects sometime after 2020. That’s not necessarily a problem given Australian production is big enough that it can’t be taken out. But it does mean that whenever the supply demand balance slips towards buyers, it is Australian LNG that will be under pressure to limit output.

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In short, Australia’s magnificently expensive seven represent the highest marginal cost production for LNG markets globally over the next two decades – and a constant threat to the profits of their owners.

Here’s the Australian project cost curve:

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But I’ve seen estimates of up $14mmbtu break even for the QLD projects…

David Llewellyn-Smith

David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal.

He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.

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Comments

    • I suspect we’re fucked long term. Short term we’re probably ok. Long term, completely screwed.

      • Those claiming EROEI (unconventional) not going to stack up over time are likely to be redeemed.

        ‘Many industry insiders know perfectly well that the prospects for recovering substantial amounts of gas are poor, and that the industry is structured as a ponzi scheme. Still, there has been money to be made in the short term by flipping land leases and building infrastructure to handle gas.

        The hype is so extreme that those who fall for it contemplate, in all seriousness, North America becoming a natural gas exporting powerhouse, and a threat to Australian LNG producers, or to Russia’s Gazprom.’

      • hahah. go lorax. true though he has gone all marion king hubbert on us, his point is indeed valid. its one big ole ponzi scheme and i reckon he is spot on re: FLNG

      • I Don’t often agree with 3d1k, but in this instance I agree that unconventional sources are hyped beyond all belief. They are often uneconomic with little prospect of improving not to mention environmentally contentious. I spoke with a senior Conoco engineer a few nights back, his take was that although he was ‘no greenie’ he was against anything that could negatively impact aquifers.

  1. At, $US7 per million British thermal units, the companies will commission these plants in Gladstone, run enough gas through into the export tanks, so they don’t blow away next cyclone, then shut them down.
    With the Aussie company LNG, making operational their cascading chilling process, none of these older types of plants are viable, even if they could find enough gas.
    White, white elephants. WW

  2. Hey Wiley Wolf,

    How about a bit more background for those of us with little industry specific knowledge but a desire to understand?

    • Mr Explorer Sir
      Liquified Natural gas Limitied is an ASX listed company
      THey have a website or if you Google “OSMR Technology”, you will be taken to a page showing you a P&ID diagram of the process. There is a link there,”click here for paper on “Improved LNG Process – Better Economics For Future Projects”. Will tell you about their process.
      Now I’m not associated with LNG, but I understand what they are up to. This process of theirs is not battle tested yet, but if it works, it will be an advancement in the compression and liquefaction of gases as big as the move from propeller driven aircraft was to jet engine d planes.
      They claim 30% better and only half the capital cost.

      Plonk one of their plants on a FLNG platform and East Timor can get their own gas.
      Woodside will wonder what happened. (it has that much potential) WW

      WW