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.
The gas cartel is in full swing this week. We had the Santos write down yesterday. Today Origin, as it’s white elephant hoses another $3.1bn into the sea: But who cares when your artificial gas shortage throws up electricity profits growth like this: Recalling that gas sets the price of electricity in the National Electricity
From Australia’s worst company, STO: That’s nearly $3bn in write downs on GLNG now. It only owns 30% of the great $18.5bn elephantine failure so over half of the carrying value is now gone. Worry not, the rest will disappear in due course as those oil forecast are never met. As it throws loss-making gas
I’ve been warning of this for a few years, via Macquarie: Event WPL, OSH and STO release their 2017 half-year results on Aug 16, 22 and 24, respectively, and we updated our outlook ahead of results. Impact Impairment risks: We believe both STO and WPL could announce impairments for H1CY17, together totalling ~US$1bn.
Via STO: Pelican Point is one of those gas-fired power stations that have sat idle as the gas cartel has applied discriminatory pricing across the east coast. This is welcome and goes a long way towards resolving SA energy security issues. However, one deal does not a Summer make and the key is what price
From The Australian over the weekend: Prime Minister Malcolm Turnbull says South Australia’s energy plan is an “experiment” that should have been conducted privately. “You really have in South Australia, of course, been subjected to an experiment by (Premier) Jay Weatherill. People really should conduct these experiments, as dangerous as that, privately somewhere in expert
A currency shock is being unleashed upon Australia: How high it goes is anybody’s guess. I still say low 82-83 cents with DXY falling further yet as EUR powers on. But everything is sure getting overheated. Dalian is falling: The ASX is staggering under the load. Big Iron is trying but can’t get far: Big
At MB we are great fans of Jay Weatherill. His bank levy is bonza. His renewables shift is nation leading. And his temper is a Bobby Dazzler: South Australian Premier Jay Weatherill has been urged to apologise after branding critics of the state’s power outages “right-wing f..kwits” at a federal colleague’s book launch. Speaking at
Via Morgan Stanley: The oil market reached balance earlier this year, and in May observable stocks were drawing at above seasonal rates. Still, forward looking indicators suggest this may be temporary: tanker loading are high and rising, OPEC compliance is slipping and non-OPEC growth is back above 1 mb/d. Not all data points are bearish
Via AFR: The gas industry is set for another showdown with government over LNG exports after Federal Resources Minister Matt Canavan declared he was “underwhelmed” by the commitments so far from producers to address the east coast gas shortage while exporters insist that restricting exports would do more harm than good. Senator Canavan said he was writing on Monday to the national competition watchdog, the energy
Via Bloomie: Limiting oil output from Nigeria and Libya won’t be on the agenda when OPEC and other producers meet on Monday, with both African nations saying they’ll need to keep pumping at a higher level before they can join a global effort to stem a supply glut, according to two people familiar with the planned
Via Domainfax: The Turnbull government is moving a step closer to slapping export restrictions on liquefied natural gas producers as part of its bid to secure domestic supply and bring down prices. Resources Minister Matt Canavan will give formal notice to LNG producers on Monday that he will use the Australian Domestic Gas Security Mechanism
Dalian has just flopped into the positive today: With Big Iron down a little: Big Gas is up a bit as one of Australia’s most evil firms, STO, gouges the entire east coast for better profits: Big Gold is still sickening: Big Banks are trampling the APRA pansies: As Big Liar trades sideways: Another ethicists
Via The Australian today: Craig Kelly has doubled down on his comments suggesting renewable energy will cause deaths this winter, saying dozens more people could die if power prices aren’t brought down. Mr Kelly, whose claims were described as “ridiculous” by some of his backbench colleagues, said the cost of electricity is the “number one issue”
Via Credit Suisse: The currency conundrum Whilst the oil price continues to struggle to claw its way back towards US$50/bbl, the A$/US$ has had no such inhibitions in propelling its way through 79c. This presents an interesting conundrum for investors in the Australian Energy sector. The spot A$ oil price is sitting at just under
The Citi oil uber-bull is no more: As outlined in Commodities 3Q’17 Market Outlook: Searching for Summer Sunshine, while still constructive on oil, the unanticipated drop in disrupted oil supply (Libya and Nigeria) in parallel to a more productive Permian has led Citi’s Commodities Team to revise down its expected price path for oil through
The AFR has a nice story today illustrating the death of Australia: The Turnbull government’s strained relationship with corporate Australia has come under more duress following some heated exchanges between the Prime Minister and the nation’s leading chief executives at a private dinner in Sydney on Monday night. …The dinner was attended by board members
Paul Kelly today: In his speech yesterday, Deputy Prime Minister Joyce said a “conclusion” from Finkel was vital. He called for compromise all around, from the Nationals, the Liberals and Labor. He said policy must bring renewables forward as well as coal and gas in baseload power. The central task, Joyce said, was to secure
The world’s crappest bourse knows a policy error when it sees one. As the Aussie flies on RBA wings today: The ASX200 is down firmly and still sporting a nasty head and shoulders topping pattern with a neckline around 5600: Bond yields are getting hosed: Dalian is going nuts: Big Iron is mostly up but