Several readers have asked recently how the Australian dollar impacts LNG. It is a positive arbitrage for the QLD projects because they price many costs in local currency. UBS measures the impact today:
At At current oil prices ORG still meets BBB- standards At spot A$ oil ORG will receive around A$220m per year in distributions from APLNG, not enough to meaningfully pay down ~$10bn of debt. If Brent remains around US$48/bbl in FY17 we model debt: ebitda of around 4.5x. The BBB- soft target is around 4x and the BBB soft target is 3x.
…ORG has guided to A$900m of distributions from APLNG @ A$100/bbl oil and the sensitivity is plus or minus A$200m for every A$10 move in the oil price. At current spot oil prices, assuming the sensitivity is linear, distributions are forecast at just $220m. We do not think that will make much of an impact on the A$10bn of consolidated ORG debt.
These are larger benefit than I’ve factored in. My own calculations for cash breakevens need to come in to more like US$6mmBtu and below break evens for the QLD projects.
This is one reason why when we do get to the big write offs, capital raisings and changes of ownership ahead, the LNG projects will be worth revisiting for a long term investment. With a currency at 50 cents and costs written down, their cost bases will be competitive.
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.
