The Brent oil benchmark was more or less stable overnight. That should have left the contract LNG price where it was. However, I shifted from WTI to Brent yesterday in my charting the Japanese Crude cocktail (JCC), which is the underlying price used for LNG, and in the process discovered a glitch in my old
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.
Yesterday I attended the latest in the Melbourne Economic Forum series, on energy, and there was one paper that stole the show. Professor Philip Adams of Victoria University unleashed the Centre of Policy Studies model of the Australian economy on the question of whether the LNG boom will increase welfare in the long run and the
And so it begins for energy, with the sell side repeating its iron ore price mistakes: Morgan Stanley has trimmed its earnings expectations and price targets for Australian energy companies after lowering its oil price forecasts. Its revised Brent oil price forecasts are US$90/barrel for 2015 and US$95 a barrel for 2016, down 8% and
From the SMH blog: Woodside Petroleum has confirmed plans to develop its large Browse gas fields off the Kimberley coast using up to three huge floating LNG vessels in a project that would have a life span of up to 50 years. In a draft environmental impact statement for the venture, released this morning, Woodside said the floating
While everyone is focused on the iron ore crash, an equally large mauling is taking place in LNG markets. Overnight, the oil price sank again well over 1% and is trading at $74. 37 as I speak: Unless OPEC cuts deeply, it’s going to get worse, from Bloomie: Shale drillers are planning on production growth
The WTI oil price resumed falling last night, down half a percent to $75.45 as I write: The equivalent LNG contract price is $12.77mmBtu: In shorter term markets, the benchmark Japan/Korea marker for January delivery has collapsed to $10.30mmBtu, prices unseen since before the Japanese tsunami and let’s not forget that that is the
Last night WTI oil slid to $76.87 as I speak: I’ve slightly trimmed my LNG price slope to 14.6% on some new calculations and the end result is a current LNG contract price of $13.14mmBtu: We’ve actually moved into a contango of sorts with spot trading well above that recently, from Reuters: Liquefied natural gas
Sigh. It’s all so predictable! From LNGworldnews: Wood Mackenzie anticipates that the Pacific will experience a ramp up of 70 mtpa in new LNG supply from Australasia over the period to 2019, driven by production from Papua New Guinea and Australia. This has been complemented by the outlook for Chinese demand – the country has
From Mac Bank via the SMH blog: Compared to the Power of Siberia, Altai benefits from existing Western Siberian production and a shorter pipeline route making this a significantly cheaper and faster development – cost estimates vary from $US14-$US18bn (v $US75bn for Power of Siberia) with first gas expected in 2020. 30bcm/yr is ~23mtpa in LNG equivalent
From Barclays: As oil prices continue to fall, we review the likely supply response of tight oil supplies. Admittedly, cost of supply curves do not tell the whole story about where prices might bottom. At $80/b WTI, we think most producers will sweat it out and achieve their stated production objectives in 2015. But if prices
While Tony Abbott is shirt-fronting Vladimir Putin, the latter is busy destroying the underpinnings of Australian LNG. From RT: President Vladimir Putin and Chinese leader Xi Jinping have signed a memorandum of understanding on the so-called “western” gas supplies route to China. The agreement paves the way for a contract that would make China the
From the AFR comes some price rhetoric on LNG by Woodside Petroleum chief executive Peter Coleman: “By holding out for a cheaper price, customers are potentially exacerbating project FID [final investment decision] delays and may unwittingly help bring on a supply crunch,” he said on Thursday. Mr Coleman is one of several chiefs of LNG supply
Oil resumed its slide last, back to $78, with more to com it seems. From the WSJ: …At a news conference in Vienna on Thursday, OPEC secretary-general Abdalla Salem el-Badri said the group is “concerned, but we are not panicking.” …“At $70 a barrel, there will be panic in OPEC. We have become used to
Oil rebounded strongly last night on an explosion in Saudi Arabia. From the WSJ: Oil futures stayed higher Wednesday on weekly U.S. inventory data showing a smaller-than-expected increase in oil supplies. Prices briefly jumped after rumors circulated on Twitter that a pipeline exploded in Saudi Arabia, raising fears that the country’s crude production and exports
The oil price rout continued overnight on news that Saudi Arabia is cutting prices, down to $76.50: The LNG contract price is tumbling as well, by my calculations now at around $13.60 by January: The paper market continues to suggest more pain ahead, the 12 month swap forecasting $12.70 or WTI $70: Meanwhile, the New
From LNGworldnews: In its forecast of winter 2014/15 gas demand, Wood Mackenzie asserts that the Asia Pacific LNG market is likely to continue to loosen this winter, favouring buyers however, this outlook would rapidly change in the event of a cold winter. Gavin Thompson, Head of Asia Pacific Gas & Power Research for Wood Mackenzieexplains: “Based
From Deutsche: The emerging shift in Saudi strategy means that it may be stepping away from its predominant role as the sole provider of swing capacity in the market. This role encompasses both curtailments in times of oversupply as well as increases in response to unplanned supply disruptions. While both activities entail costs either in
Bloxo tackles the forthcoming LNG volumes boom today: After many years of talking about the impending rise in liquefied natural gas (LNG) exports, 2015 is set to be the year when it all begins. Seven major projects are being built across the country with the earliest (and largest) having commenced construction in 2009 and it is only now
From Platts: Exports of LNG from North America will not cut prices for Asian buyers or address fundamental supply issues in the region, the head of the International Energy Agency said Monday. “There is one thing that Asia cannot count on — cheap, abundant gas unleashed by the [US] shale gas revolution,” said Maria van
Oil bounced last night on the following from Bloomie: The amount of oil Saudi Arabia supplied to markets fell last month, according to a person familiar with the country’s oil policy. Its production climbed. The world’s biggest crude exporter supplied 9.36 million barrels a day last month, a reduction of 328,000 barrels daily from August, according to
From Fairfax: Under the regime, announced overnight Sydney time, a tax of 3.5 per cent will be levied on LNG export projects, compared with the original proposal in February of up to 7 per cent. The cut came after Malaysian national oil company Petronas threatened to suspend its plans for an LNG venture in Canada. It
Japan released some healthy forecasts for Australian LNG yesterday: Most of Japan’s liquefied natural gas imports will be coming from Australia and North America by 2020, government estimates show. The Ministry of Economy, Trade and Industry also sees Japan relying less on the Middle East and Southeast Asia for this energy resource. The ministry expects
Citi today offers some useful analysis of the trillion-dollar question. At what price can Saudi and/or OPEX dislodge US shale oil production? And, by extension, what price are we going to see for LNG contracts for the next few years? In a stand-off between OPEC and US shale, how low can shale go? In a bear scenario,
The FT has some nice coverage of the oil market, Australia’s very important emerging commodity via LNG (on which the comatose Australian press is, as usual, snoring). It begins with some conventional wisdom on Saudi Arabia: By encouraging oil prices to fall, Saudi Arabia is taking a calculated gamble in its already strained relationship with the
Welcome to the joys of being an energy producer. Overnight, oil was smashed lower by almost 5%: It’s way oversold but mid 70s looks like a decent first target for a base on the longer term chart: The cause was the International Energy Agency punching it twice. From the FT: In its closely watched monthly oil