How bad is LNG? Bad

Kudos to Angela Macdonald-Smith for attempting to bring a little sobriety to the great idiot today:

Consultancy FGE says between 25 million and 35 million tonnes of the 65 million tonnes a year of US LNG export capacity under construction has been sold to “middle men”, traders or portfolio LNG players such as BG Group or Mitsubishi, that still need to sell the gas on.

…In addition, about one-third of Qatar’s export LNG volumes are unsold, while the three big Chinese national oil companies and one Indian NOC have switched from buying to selling as they seek to re-sell LNG they have committed to purchasing, according to FGE.

…That means about 70 million tonnes a year of LNG is still looking for a buyer…

Yet existing Australian LNG producers should be mostly insulated from the worst of the effects, says Adelaide-based consultancy EnergyQuest.

It points out that the new Australian projects coming into production are all largely covered by contracted sales to buyers that respect the sanctity of contracts and value the long-term relationships that underpin the Asian LNG industry.

That’s MB’s 70mtpa surplus right there. As for EQ, use a bit of imagination, chaps, spot is going so low that Australian producer contracts will end up hanging from a toilet roll in the executive rest rooms of some Chinese petro-chemical firm.

The market seems to share my view this afternoon with everything gas pulverised:

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Comments

  1. You’re not suggesting that some of these long-term contracts are not exactly water tight? Or should that be gas tight? (hang on, it is liquid gas, so water tight might work….)

    • The likes of Gorgon cannot go ahead without the majority of the sales locked in at a fixed price, just like RE developers cannot get finance without selling the majority of units beforehand.

      Well, that is the theory.

  2. That 70Mt pa number is worse than I thought… surely not! Surely there will be some substitution and additional demand usage given current price regimes…

  3. The Oz gas sector is uninvestable. The stunning price falls of STO (-9.9% today) , ORG (-5.5%), BPT (-9.7%), etc are not over.

    I except my little ray of sunshine, Central Petroleum Ltd, whose 3 stranded gas fields around Alice Springs will link via NEGI to the East in early 2018. The rest are basket cases.

    Disclosure: CTP

  4. From the EnergyQuest report:

    Australian LNG projects set to defy oil price slump and global oversupply
    3 December 2015
    A new assessment released today of Australia’s existing and new LNG projects says that the commodity price slump is unlikely to affect the rapid growth in the nation’s LNG production.
    “There is no sign that OPEC is likely to change its strategy at tomorrow’s meeting, a strategy that has halved oil prices,” Chief Executive Officer of EnergyQuest, Dr Graeme Bethune, said today.
    Dr Bethune was commenting following the release of the influential EnergyQuest quarterly, its milestone 40th edition.
    “The immediate LNG oversupply is also likely to continue with the surge in cargoes from Australia and the United States,” he said.
    “However, while LNG prices are much lower than they used to be, the new Australian projects are still likely to generate loads of cash, just like the existing projects, and the producers will want the projects to produce as much as they possibly can.”
    Dr Bethune said the breakeven operating cost for new Australian projects is quite low, typically below US$4 per million British thermal units (MMBtu).
    It is even lower for established projects: the North West Shelf, Darwin LNG and Pluto.
    “Notwithstanding low oil prices and the LNG oversupply, LNG prices are still well above US$4/MMBtu,” Dr Bethune said.
    The new report quotes the average prices realised by the North West Shelf and Pluto in the September Quarter of US$7.20/MMBtu and US$9.12/MMBtu respectively.

    http://www.energyquest.com.au/insightsandanalysis.php?id=240

    • To what extent are the equity partners in the Gladstone projects also the contracted off takers?

      Are the equity partners possibly still better off to write down their investment and attempt to break contract or re-contract?

      Maybe a bit of both, partial write down of the assets and re-contract as well….

      • They’re pretty big shareholders, yeh. But we’re talking pretty big discounts too. In 2017, If oil were at $55 the contract will be $8 or so. Spot will be $4.

        If I were them I’d wait until the next growth “shock” then bail while the shit is hitting the fan all over. Take the write down and enjoy the cash.

        With a bit of luck you might even get to buy the plant for a song.

        China has already made contract reform a precondition for Shell/BG bid. They know what they;re doing.

      • Depends on the project but it’s complex, JV partners can own parts of tenements, infrastructure, parts of a train, all of which might overlap each other, but generally speaking they are offtakers. Without knowing what the future cash flows are you can’t assign a value in use and you can’t determine the magnitude of the impairment/write down. Not to mention budgets and cash flows will be based on oil price assumptions – when that assumption is proven to be false and effective pricing of cargoes decouples, then it will be interesting.

      • APLNG
        Sinopec (JV 25%) 7.6mtpa, 20 yrs
        Kansai, 1mtpa, 20 yrs

        QCLNG
        Global 10mtpa
        – CNOOC
        – Tokyo Gas
        – GNL Chile
        – Chubu Electric
        – Energy Market Authority of Singapore

        CNOOC has acquired a 5% stake in certain tenements and 10% of one of the first two LNG trains. Tokyo Gas has acquired 1.25% of certain tenements and 2.5% of QCLNG train 2.

        GLNG
        Santos 30%
        Petronas 27.5%
        Total 27.5%
        KOGAS 15%
        Total project 7.8mtpa; 7.2mtpa to Petronas and KOGAS, 20 yrs binding