The AFR is carrying some sobering analysis abou Australian LNG today:
…according to LNG expert Fereidun Fesharaki…who has close links with LNG buyers, the flexibility Asian buyers have to use other energy sources such as coal was being ignored in the “crazy” forecasts for LNG consumption espoused by some producers and analysts. “The customer that everybody assumes is there based on these crazy demand forecasts is just not there,” he said.
Dr Fesharaki said any new LNG project worldwide needed to be able to supply LNG at just $US13 per thousand cubic feet of gas to win customers.
That compares with an average price of Australian LNG into Japan of about $US15.80 in March.
Credit Suisse, a client of Dr Fesharaki’s FACTS Global Energy consultancy, said that a $US13 price would make it very difficult for new LNG plants around Australia to go ahead.
“It means Australian projects are probably almost automatically locked out,” said David Hewitt, Credit Suisse’s global head of energy research.
Correct. It also means existing projects projects are going to weigh very heavily on returns on equity for producers from 2018 and that Australia’s terms of trade falls will re-accelerate around then as well.
It’s an action replay of coal and iron ore, though is probably a lot worse because the magnificently expensive seven LNG projects are going to be the swing producers at the wrong end of the cost curve.
Truly, the decision by our economic mandarins to restructure the Australian economy based upon notions of limitless Chinese demand is going to be seen by historians as a monumental blunder.