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.
From Morgan Stanley: As part of the downside risk stress-testing, we ran our top down US oil production model under a broad $40-60/bbl WTI price range assumption in $5/bbl increments. Key take-aways are: – We estimate that US production will grow 800-1,050Mbbld exit/exit in 2017 with WTI in a broad $45-60/bbl range for the rest
From Credit Suise: Slip sliding away? With the sector falling more by the day, we thought it was worth an update on what stocks are pricing in, where balance sheets sit and what the Australian industry is doing (or not as the case may be). Perhaps it is an indictment on where valuations were before,
Via the AFR: The UBS analysis comes just ahead of the introduction of the government’s controversial “domestic gas security mechanism”, which could cap LNG exports if it is triggered. But ironically the design of the mechanism means it would affect only Santos’s GLNG venture, rather than the two Queensland LNG projects that have extra gas
Dalian has opened flat: Big Iron has broken with FMG right at new intraday lows, BHP crashed through them, and even coconut vendor RIO under pressure: Big Gas is now burning out of control with STO pointing straight towards new 40 year lows: Big Gold is chopping wood in its correction: Big Bubble is bursting
Via The Australian: The Turnbull government is preparing to back the construction of new coal power stations to prevent a dangerous shortfall in electricity supplies, using “reverse auctions” to replace ageing coal-fired generators with new technology already embraced in Japan and China. The new agenda promises to scale back the need for a controversial clean
Via The Australian: The Turnbull government has announced it will impose restrictions on Australia’s domestic gas supply in a bid to lower electricity prices. “It is unsustainable for our country to be the world’s largest exporter, but to be paying some of the largest prices for gas,” Resources Minister Matthew Canavan said. Malcolm Turnbull also
Dalian is wandering aimlessly today: Big Iron is mostly up: Big Gas is burning: Big Gold is correcting: Big Bubble has had its run seemingly: Big Liar is soldiering on: And a bonus chart today, hope your enjoying Australian exceptionalism: If not, try the MB Fund launching July 1st with a 70% international equities allocation. Sign
Oil bull Morgan Stanley capitulates today: The return of oil inventories to five-year average levels was characterised this week by the IEA as “the currency used to express re-balancing”. We still expect some draws in 2Q/3Q but on our estimates, a return to five-year average stock levels remains elusive for some time to come. The
We warned and warned and warned and now they are here: Around three quarters of the nation’s households and businesses are now facing substantial rises in their power bills from next month, after Origin Energy announced price hikes for electricity and gas. Rounding out price increases from the big three generators and retailers, Origin Energy
Via the AFR: The east coast gas debacle has become a game with no winners, even with the Australian Domestic Gas Security Mechanism. While LNG producers have been vocal on the hit to their reputation from LNG export controls, neither can manufacturers expect much relief from their problem of high gas prices. In just over
From Santos CEO Kevin Gallagher today on the domestic reservation mechanism: We believe there are better ways to manage this situation than government intervention that might expose the taxpayer to compensation payments while not delivering any public benefit. Remember this crisis is about pricing not supply, which is why I have questioned the net contributor
The AFR has the scoop on today’s AEMO update: Australia is at risk of more blackouts next summer despite a raft of new initiatives from energy regulators and governments, according to the latest forecasts from the Australian Energy Market Operator. The AEMO report to be released on Thursday also warned the looming gas shortage –
Via the AFR: The chance of crude oil prices slumping to $US30-$US35 a barrel for several years, sending the global economy into crisis and multiple producers into bankruptcy, has emerged as a real threat, according to one of the world’s leading forecasters. Fereidun Fesharaki, chairman of respected energy consultancy FGE, said much higher US production
From Treasurer Morrison: Treasurer Scott Morrison has warned the federal government can’t continue with existing energy policy because it’s hurting families and the economy. Mr Morrison described as a “useful discussion” a lengthy coalition partyroom meeting on Tuesday night about a report from Chief Scientist Alan Finkel on energy security. Mr Morrison warned that for
That seems to be the depth of reasoning overtaking the share market today as banks soar. After all, nothing says buy banks more than a crashing global yield curve and an even more rapidly deteriorating local economy. Booya! Go figure. Meanwhile, Dalian is OK so far: Though Big Iron is not so good following overnight
Via Mark Samter and the superb gas team at Credit Suisse: The month of June should, in theory, reveal plenty about the much-fabled (by us at least) East Coast gas market. If the draft legislation for the ADGSM is anything to go by, particularly if no shortage is found for 2018, then potentially plenty of
Dalian is moderately ill today: But it’s Costanza day on the market, “do the opposite”: Perhaps it’s this tripe from CBA: “Rising seaborne and domestic Chinese supply and muted restocking demand help explain the recent slump in iron ore prices,” he says. “The higher prices that prevailed earlier this year likely reflected temporary factors, such
Congratulations to all: Households across the eastern states are about to be hit directly by the closure of the giant Hazelwood power station in Victoria and soaring gas prices, with sharp hikes in retail electricity prices from July 1 coming on top of the hefty increases in recent years. Homes across NSW, the ACT and South