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
What madness is this? Via The Australian: NSW has given critical status to a second LNG import terminal as it seeks to avoid potential gas shortages hitting the state on peak demand days from 2023. A proposed $590 million gas plant on Newcastle’s Kooragang Island, which could supply up to 80 per cent of NSW’s
Via the AFR: The chemical industry has issued a fresh call for government intervention to bring down east coast gas prices, backed by new findings that every petajoule of gas used by chemical makers supports 80 times more jobs and creates 33 times more economic value than the LNG sector does. “We would like government
Via the IEA Friday night: While geopolitical tensions in the Middle East Gulf remain high, with US sanctions recently extended to more Iranian officials and a Chinese oil importer, as well as another tanker seizure, oil prices (Brent) have eased back from the most recent high of $67/bbl. Shipping operations are at normal levels, albeit
Via the Ministers: Joint media release with the Treasurer, the Hon Josh Frydenberg MP and the Minister for Energy and Emissions Reduction, the Hon Angus Taylor MP The Liberal-National Government will help secure gas supplies, put downward pressure on prices and encourage new investment in gas supplies. The measures we announce today will help to protect
Via the ABC: A portion of Australia’s gas supplies could be set aside for domestic use as part of a Federal Government push to try to bring down gas prices. Resources Minister Matt Canavan announced the Commonwealth would formally examine a domestic gas reservation scheme in Western Australia, where he said consumers paid some of
And why wouldn’t it? Power prices are more than double historical averages: Via The Australian: Rio Tinto’s aluminium smelters in Gladstone and Newcastle are “on thin ice” and face an uncertain future if Canberra does not act on the east coast energy cost crisis, according to Rio boss Jean-Sebastien Jacques. As Rio delivered another $US3.5
It’s fun to watch Asian gas prices, via Bloomie: The latest bad news for bulls came this week, as China National Offshore Oil Corp. bought a liquefied natural gas cargo for early September delivery to China at about $3.90 per million British thermal units, according to traders with knowledge of the transaction. The region’s benchmark
Via the AFR: The influx of solar and wind power into the energy grid could trigger federal rules forcing retailers to guarantee supply, driving a wave of new gas power plants to reduce the chance of blackouts. The country’s top energy policy adviser, Kerry Schott, said the rise of green power without matching new firm
Some genuinely whacko stuff today from the AFR: Soaring solar generation has meant that renewables provided 30 per cent of Australia’s midday power supply most days last month, depressing wholesale power prices and piling pressure on coal-fired generators unable to ramp down their operations, …The new figures to be released on Wednesday by respected analysis
Woodside has become Australia’s marginal cost gas producer, via the AFR: Market fundamentals are stacked against Woodside’s $45 billion brace of West Australian LNG projects: Customers in Asia, perhaps fed up with the premium they are paying for contracted LNG over the depressed spot rate, are proving reluctant to lock themselves into new long-term contracts.
Via The Australian comes a very bad idea: Santos has set its sights on exporting a growing share of its big West Australian gas production base through the state’s existing liquefied natural gas plants, as chief executive Kevin Gallagher warns that greater access to international markets will be crucial if WA is to avoid a
Via Reneweconomy: You don’t get to see this very often – when the spot price of electricity on all the state-based grids in Australia’s main wholesale market hit zero at the very same time. The incident, captured in this screen shot of the Australian Energy Market Operator’s data page by Macquarie Capital’s Brian Morris and
Via New Daily: The federal government may soon announce further changes to the gas market, to ease the burden on consumers being stung by high energy costs. Senator Rex Patrick has told The New Daily he has been negotiating with the government to further strengthen the neatly titled, Australian Domestic Gas Security Mechanism (ADGSM), amid ongoing uncertainty about the
Via The Australian: If we want more affordable gas and cheaper, more predictable electricity generation then we need to increase the gas supply. This is also the view of the Australian Competition & Consumer Commission. If we want to receive billions of dollars in royalties and unleash resource-driven jobs and prosperity, we need to force
Via the AFR comes nightmare of the ACCC’s making: Shell is edging towards a long-awaited decision to develop about 5 trillion cubic feet of gas at its Arrow operation in southern Queensland, but senior management has made it clear a go-ahead later this year is not a foregone conclusion after several “surprises” from governments that
Via the Global Times, Communist Party of China foghorn: The progress and functioning of Russia’s Power of Siberia pipeline could be a bad omen for Australian liquefied natural gas (LNG) exports despite record volumes recorded in recent months. Chinese state-owned oil major China National Petroleum Corp (CNPC) and Russia’s Gazprom agreed on certain details about
Via Reuters: The United States and China will become the world’s biggest liquefied natural gas (LNG) exporters and importers, respectively, in five years, according to projections by the International Energy Agency (IEA). U.S. LNG exports are expected to rocket to over 100 billion cubic meters (bcm) in 2024, dislodging current market leaders Australia and Qatar,
From the IEA last night: The main message of this Report is that in 1H19 oil supply has exceeded demand by 0.9 mb/d. Our latest data show a global surplus in 2Q19 of 0.5 mb/d versus previous expectations of a 0.5 mb/d deficit. This surplus adds to the huge stock builds seen in the second
Hoocoodanode! Via the AFR: Taylor clearly believes in adding more political pressure – given his insistence that prices must come down a lot further. That includes potentially toughening the Australian Domestic Gas Security Mechanism established two years ago to ensure no shortfall in the domestic market due to the export of LNG from Queensland. The
Deary me Matthew Stevens: Queensland’s gas exporters appear to have quietly anticipated the gathering post-election furore over their domestic market obligations by embracing market logic in pushing their uncontracted coal seam production into domestic markets. While the politics of gas gets ever more confused by personal and party ambitions, the latest data assembled by independent
Via Stephen Letts at the ABC: The Federal Government’s tentative steps towards reregulating the retail energy market have seen power prices rise and competitive pressure between rival suppliers ease. Less than a month into the new regime, the view of investment bank analysts is consumers will not notice much of a difference and recent price
Via the AFR today: Evidence has grown in past weeks that customers in the top-tier markets of Japan and South Korea are prepared to act more aggressively than ever before in price review negotiations to reduce the large disconnect between their crude oil-based contract prices and the rock-bottom spot LNG price. …The world’s biggest LNG
A new report by the Institute of Energy Economics and Financial Analysis (IEEFA) has explained why a domestic gas reservation policy is essential to bring down Australian power prices and save local industry. Below is the Executive Summary with charts added for extra context: Gas sets the price of electricity in Australia because it is
Via The Australian: Centre Alliance senator Rex Patrick wanted the government’s intention on gas in writing before he offered his party’s support for the full tax cut plan. Senator Patrick told The Australian the document detailed the measures of the government’s gas plan and the timetable in which they would be rolled out “over the next few
Via APPEA, the gas cartel’s cheap lobbyist: APPEA needs to hear directly from the Government on the specifics of the proposed gas deal before commenting further.” But we see no need for changes to the Australian Domestic Gas Security Mechanism (ADGSM) at this time. The ADGSM is up for a review in 2020 and the
From Centre Alliance: After lengthy negotiations with the Government to address concerns that Centre Alliance has about rising energy costs, and particularly the high electricity costs in South Australia, Centre Alliance has agreed to support the Government’s personal tax cuts legislation. Supporting the tax cuts will reward Australian taxpayers and provide a stimulus to the
Via The Australian: Senator Griff said discussions with the government on measures to reduce gas prices, which the minor party had called for in order to support the entire tax cuts package, were “progressing very well”. An east coast gas reserve is one policy being considered, as well as a modification to the Australian Domestic
Via Global energy Monitor: Through a massive increase in portside infrastructure, floating offshore terminals, and oceangoing LNG vessels, the natural gas industry is seeking to restructure itself from a collection of regional markets into a wider and more integrated global system. If successful, this transformation would lock in much higher levels of natural gas production
Via the AFR comes The Cartel: Centre Alliance Senator Rex Patrick is pushing for modifications to the Australian Domestic Gas Security Mechanism to bring down gas – and therefore electricity – prices. He has pointed to chief competition regulator Rod Sims’ suggestion of $7 a gigajoule as a potential reference point, although argues the price
Via The Australian: Centre Alliance senator Stirling Griff says his party is “close” to a deal with Scott Morrison to pass his full tax cuts agenda and tackle high gas prices. “It’s getting close … we’re a 100 per cent behind income earners getting an extra boost in their pay packet,” he told ABC radio.
