Browse dead as LNG projects stall

Figure-12-Stalling-above-N69

by Chris Becker

More bad news on the LNG front as the plunge in oil affects more than just the price at the pump. From Fairfax:

“Browse is dead. Projects that are in construction will finish, but anything that’s theoretical, on the drawing board, is just going to get pushed back,” said RBC Capital Markets analyst Andrew Williams.

Woodside last month put back a target for starting engineering design work on the Browse floating LNG project to mid-2015 but few expect that target to be met without a rebound n prices.

One Sydney-based analyst said, “We are no nearer to first gas from Browse today than two years ago.”

Its not just Browse, but the “worthless” Santos, with its huge GLNG plant in QLD still under construction and probably not going to be profitable or even viable at current prices.

Write downs are coming which means more pressure on stock prices:

BG Group also last month flagged a write-down on its new $US20.4 billion Queensland Curtis LNG project, which only came into production late December.

“The reality is these things are not worth close to book value,” said Credit Suisse energy analyst Mark Samter.

“You have to believe you’re going to see enormous write-downs in particular from Santos and Origin – BG have already taken an initial write-down on QCLNG and alluded to the fact it could take a larger one.”

Moody’s senior vice president Tom Coleman says lower oil-linked pricing for LNG and uncertainty over demand growth are already taking a toll on prospective new projects, both brown-field expansions and giant green-field ventures.

Chevron has also again put back a decision to start design work on an expansion of the massively over-budget Gorgon project in WA, while new LNG projects in East Africa and Canada planned by Eni and BG could be slowed or cancelled, Mr Coleman said.

 

Better start pumping up that housing construction because there’s going to be a lot more mining jobs going to the wall for a very long time. Investment positioning against this macro backgroup would require some swift work catching rallies on very short timeframes alone.

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Comments

  1. “Better start pumping up that housing construction …”

    but with all the job losses to come who will have the coin to fund or buy what is built?

    Maybe the gov’t will soon open the doors to half a million or more new residents per annum? wouldn’t that be grand

    • The catch with housing construction as an employment solution is that if it actually works it will put enormous pressure on the monetary policy debt machine model as house prices soften under the increased supply.

      The idea that the extra housing supply can be soaked up by house hungry migrants is wishful thinking as those migrants will come looking for jobs.

      We cant all get jobs building houses.

      Now a possible solution is that we all get busy building houses for foreigners that remain empty and thus do not push down house prices and thereby imperil the bait rate driven debt machine.

      Does that sound familiar?

  2. In the short to medium term new projects already had very little likelihood of going forward, volatility in oil compounding the existing reality.

    If oil stays low, North American production to export will become a fiction and consuming nations will be keen to seek reliable,stable, affordable supply from established producers like Australia.

      • Because we are going to lower the currency and imperil our mortgage stuffed banking system with its wholesale market reliance, while our budget is wedged between their cheeks, so they can bring about a balance of payments crisis…….after we have disrobed our exporting sector in a frenzied bout of RE/Mining passion.

        cheap, I hear you say?

      • Most supply is already contracted. There may be provision for renogiation in exceptional circumstances like present but equally the question of stable supply looms and dependent nations are cognisant of this dilemma. Fact is, stable supply comes at a price. New ventures will not proceed without contracted sales and buyers are not blind to this!

    • True definitely true but at what price?
      and more importantly will that price/volume/cost/opex function enable some sort of return on sunk capital.One thing is certain there’ll be lots of interesting write-downs and backdoor takeover plays (many of which would never have been approved of as direct investments)
      Interesting times await.

    • ….consuming nations will be keen to seek reliable,stable, affordable supply

      ….at low cost. US energy reservation policy will keep their energy in the fatherland, i mean homeland, regardless of export potential.

      • Exactly. I think analysts are making the same mistake as the Iron Ore guys did… they thought Chinese IO would be allowed to go to the wall just because it was uncompetitive. Not so.

        Equally, US won’t easily give up their newly-won energy independence.

        Cost is far from the only consideration. At the very least, these commodity importers want leverage.

      • It’s a ponzi mate and at current pricing they’re going broke. US needs strong oil pricing to sustain investment in unconventionals.

      • I dont doubt the issues and the over-financialisation. But IMO they will get sufficient support to retain the holy grail of energy indepedence (enough, at least). It’s a game-changer for the US. Living there for a few years, and part of it through significantly high oil/gas prices, the strength of feeling in this is huge and cross-party, never mind the economic impacts.

  3. meanreversionMEMBER

    Is anyone able to give any factual analysis on what the contract floors are for the Gladstone projects and the basis for them not holding? Do the contract floors ratchet up over time? It seems to me that there is an awful lot of speculation here that is pretty unwarranted.

  4. boomengineeringMEMBER

    There goes those two gas jobs I was promised in N.T. and Queensland to S.A. this year.

  5. boomengineeringMEMBER

    Maybe I shouldn’t have knocked back that job in Rotterdam designing ships steering hydraulic systems but it was an office job and the pay wasn’t great