Australian LNG

Australian LNG has a long history of pioneering investment. From the North West shelf to the first floating LNG project ever constructed.

Like other Australian commodities this history aligns with that of development economics of Asia. The first wave of Australian LNG development grew to service a modernising Japan and its demand for energy.  This bilateral relationship has a long history of cordial relations, share-equity investment and oil-linked contract pricing to satisfy both parties.

The second wave of Australian LNG was far more chaotic, matching the staggeringly swift rise of the much larger Chinese economy. It began along with the pre-GFC oil boom and Malthusian assumption that the world was going to fall short of everything as the enormous Chinese and then Indian middle classes ballooned and consumed more energy per capita.

Multitudinous LNG projects were sanctioned in Australia which found itself by 2010 developing no fewer than seven LNG project simultaneously. Needless to say this did not end well with gigantic cost blowouts for all as they competed for labour and other resources.

Yet, as the commodity super cycle peaked in 2011, demand suddenly fell well short of expectations and kept doing so over the next four years. Making matters worse, the US shale revolution suddenly turned that nation from net LNG importer to net exporter of a magnitude equal to Australian LNG. The global glut from 2015 was enormous.

The Australian LNG boom included a particularly cavalier offshoot in QLD where coal seam gas was liquefied via three projects on Curtis Island. As the boom subsided, and oil-linked prices crashed, the companies involved were all either sold or destroyed.

The legacy left by the projects was one of very high Australian gas prices with very low Asian gas prices, also delivering an huge blow to the competitiveness of the east coast economy. Thus the $200bn investment proved to be the greatest single capital mis-allocation in the history of the Australian economy (and surely global energy markets) and was little more than a monument to Banana Republic economics as tax takes failed, income fell and hollowing out transpired on raised local costs.

MacroBusiness was the only analytic house to call the Australian LNG bubble early, track it and predict its demise. It continues to cover the LNG sector with daily updates and a large grain skepticism and is a must read for anyone that needs to know the economic forces coming to bear on the sector.

Also check – Daily Iron Ore Price, Australian Dollar

1

MS: Oil cooked

Morgan Stanley with a note I very much agree with: Inventory draws and demand recovery have supported oil prices in recent months, but two factors are starting to take some wind out of the sails of this bullish thesis: Iranian exports and US drilling activity.We moderate our price forecast for 3Q and close our long

11

Peak coal points way for peak oil

TS Lombard with sounds analysis: Until not that long ago, the idea was still taken seriously that peak oil would be supply-side driven and triggered by sky-high prices: but as it is now clear that the oil case will resemble all previous energy transitions, useful lessons may be had from the most recent such precedent–peak

0

Oil supply discipline is breaking

It is the favourite trick of investment banks to set their own forecast so that they can be “surprised” when data misses come about. They all use it to manipulate price action to benefit their trades. A nice example is Goldman in the oil market today. The pre-Easter OPEC was bearish for prices as OPEC

8

AEMO: Import LNG or Victoria freezes

Here it is in black and white from the Australian Energy Market Operator: This GSOO forecasts an improved gas supply outlook compared to last year, largely due to Australian Industrial Energy’s (AIE’s) commitment to the Port Kembla Gas Terminal (PKGT) in New South Wales. This is Australia’s first liquified natural gas (LNG) import terminal, and

2

Is the oil rally cooked?

I have been bullish on oil because I expected it would take a little more time to break supply discipline than in the past as a strong demand rebound was underway. Make no mistake, oil is a very manipulated market so supply discipline is the only question that matters given a recovery in demand. Cornerstone

6

The tech crash ain’t over

Friday night witnessed a big bounce in technology stocks. The Nasdaq jumped 1.55%. It seems risk is back for growth and technology stocks. Or is it? I can see this perfect head-and-shoulders top dropping 30% from here. Why? The harpoon that has pricked the technology bubble is rising yields as markets fret about inflation. Growth

2

Goldman’s bullish oil case

Goldman is pumping this one like there is no tomorrow: The rally in oil prices has paused after Brent prices briefly reached the $65/bbl summer forecast we first set-out last August, on the realization that frigid US weather will only marginally tighten the global market and over concerns for a return of Iranian barrels. Despite

1

ACCC: ScoMo Gas Unplan to deliver supply shortage, price spike

Here’s the ACCC take on the Morrison Gas Unplan: Gas prices fell significantly during the past year, driven in part by the COVID-19 pandemic. While lower gas prices are providing some relief to manufacturers and other gas users on Australia’s east coast, prices were still higher than export parity, the ACCC’s latest gas report reveals. The report,

1

How high for oil?

How high for the oil recovery is always an important question given its implications for inflation. At the moment, the oil market has returned to its usual bullishness with all sorts of analysts forecasting a new supercycle: For me, this is deja vu all over again. There is no doubt that the oil market has

5

Why Australia should buy Qatari gas

In recent years Australia has displaced Qatar as the world’s largest LNG exporter. But the Qatari’s are not happy about it (neither are Australians!) and have long planned their fightback which will take the form of a monstrous 33mt expansion of cheap conventional gas. The Qatari energy minister is full of bullishess at the FT:

0

LNG bubble pops

As it was always going to, via Platts: Booming demand for LNG in Asia due to frigid winter weather put LNG carrying capacity at a premium in January. With LNG shipping rates having retreated from record highs last month and with low stocks in Europe, the market dynamics could shift in February toward the latter

4

ScoMo’s secret carbon tax kills gas power

Via Platts: The decline in gas-fired power generation to a 15-year low in eastern Australia’s national electricity market (NEM) in October-December may reflect the transition of country’s largest source of greenhouse gas (GHG) emissions to a lower carbon intensive sector. But it was not what the Australian government had in mind when it unveiled its

23

Aussies plundered as ScoMo sends cheap gas to China

Via The Australian comes another useless sop to the gas export cartel: Scott Morrison has struck a two-year deal with large east-coast LNG exporters to offer uncontracted gas first to Australian companies, in a bid to keep prices down and lower costs for manufacturers as part of the government’s COVID-19 recovery plan. But the deal,

7

CCP instructs media on how to report Aussie trade war on itself

Via CCP mouthpiece, The Global Times: The price of liquefied natural gas (LNG) has surged to record highs in recent tradings, with the weekly spot price assessment settled at an all-time-high price of $21.45 per million British thermal units. While most market analysts are focusing on the underlying market factors including seasonable price movement, a

2

Goldman’s 10 reasons for a new commodity super cycle

Via Goldman: 1) OPEC and Georgia help neutralize near-term risks. The events of last week substantially reduced the downside risks to our bullish commodity narrative — a fact reflected in the rise in oil and copper alongside the sharp decline in gold. First, Saudi Arabia agreed to a unilateral production cut that neutralized current lockdown

9

China trade war on itself sends LNG prices mad

Via Argus: Strong consumer demand, lower-than-expected temperatures across northeast Asia and a severe shortage of prompt LNG supplies and spot tanker availability have combined to send northeast Asian spot LNG prices to an all-time high — just nine months after hitting record lows. The front half-month ANEA price surged to $21.785/mn Btu for first-half February

19

WoodMac: LNG doomed!

Via Oilprice: …if governments decide to double down on their climate change targets and start aiming for the more ambitious 2-degree scenario under the Paris Agreement, LNG growth will suffer. The so-called 2-degree scenario refers to efforts aimed at curbing the rise in average global temperatures to 2 degrees Celsius. A less realistic scenario is

5

Energy Quest entirely wrong on LNG

There is a reason that Energy Quest gets all of the research from the gas cartel. Today it blasts out complete economic drivel on price controls: “This kind of policy is more common in third-world countries. Given that most LNG is sold at oil-linked prices, which are generally higher than oil-linked prices, this could require

12

ACCC backs gas price controls

It’s taken me years to beat sense into the ACCC. It began to turn a few years ago but now it’s 100% on board. At The Australian: The competition regulator and major gas buyers say Australia’s big east coast LNG exporters have nothing to fear from the potential introduction of formal price controls, arguing the

7

Lordy, is gas resrevation back on the agenda?

Have I called the bottom? Via The Australian: Australia’s big east coast LNG exporters face the introduction of formal price controls on their supplies for the first time in a radical shake-up floated by the Morrison government as it pursues a gas-fired economic recovery. A draft heads of agreement sent to Queensland’s three LNG producers