The AFR is carrying some sobering analysis abou Australian LNG today: …according to LNG expert Fereidun Fesharaki…who has close links with LNG buyers, the flexibility Asian buyers have to use other energy sources such as coal was being ignored in the “crazy” forecasts for LNG consumption espoused by some producers and analysts. “The customer that
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 LNGworldnews: Chevron’s Gorgon LNG project in Australia continues to make steady progress toward first liquefied natural gas, and is 80 percent complete with start-up expected in mid-2015, George Kirkland, Chevron’s vice chairman said at the company’s Annual Meeting of Stockholders in Midland, Texas. Almost 6,000 people are working on constructing this massive LNG project, which includes the
More on the fallout from the Russia/China mega gas deal: With Russia able to ramp up its Eastern Gas Program and China partially reducing its LNG demand growth, global LNG supply could be in further excess, which could be absorbed but at a lower price, affecting LNG developers. Although 3.7-Bcf/d of pipeline capacity based on
From the SMH on the recent China, Russia gas deal, gas industry consultant Graham Bethune of EnergyQuest said: …”Australia’s LNG sector should be mightily concerned as the project cost for Russia in its China supply deal is about the same cost as our own Gorgon project – but with a capability to supply 80 per
By Leith van Onselen In another potential blow to Australia’s magnificently expensive seven LNG projects, Citigroup has released an interesting research report forecasting a “slump” in Japanese LNG demand from 2015: Japan is a key player in world energy markets, accounting for 35% of LNG (seaborne trade)… Since the March 2011 disaster, consumption has increased
Russia and China have fused at the hip with their mega-gas deal that will pipe $400 billion worth of gas over 30 years. From the WSJ: “This will be the biggest construction project in the world for the next four years, without exaggeration,” Mr. Putin told reporters. The deal also called for at least $75
China and Russia are expected to sign a new mega-gas deal in the future but it failed to eventuate last night. From the AFR: President Xi Jinping of China and the Russian leader, Vladimir Putin, were unable to announce an agreement on a natural gas deal, despite high expectations that mutual political interests would help
From the AFR: …Woodside dropped plans last year for an onshore LNG plant on the Kimberley coast for its Browse gas resource, which would have cost a huge $80 billion or more. Instead, the venture, which includes Shell and PetroChina, is reworking the project to use floating LNG, avoiding the need to develop the controversial
The AFR carries an interview today with Citigroup’s worldwide head of energy strategy, Seth Kleinman that is sobering reading: “We’re living in a world of restrained capex, whatever corporate speak each individual company throws out; even the Chinese are reining in capex now, which is really not what people were expecting…Marginal projects are getting left
From the AFR: No matter how the Ukrainian crisis pans out, Europe’s efforts to pare back its reliance on Russian gas have been given fresh impetus. LNG suppliers, even those in far-flung Australia, look set to benefit as a result, at least in a few years’ time. Europe’s anxiety at being held hostage to Russian
For the third time in three days, there is significant movement on a major Canadian LNG project. We’ve already seen China leap into bed with Prince Rupert LNG with planned capacity of 29 million tonnes per annum (MPTA) and Pacific North West LNG with initial 12 mpta capacity moving to 18mpta. Today we’ve got formal
Is the AFR determined to ruin Jennifer Hewitt? Following her recent resources funded junkets to Perth and Biao Forum, she off to North Rankin LNG to sing more praises under the heading “Drop the resources prejudices”: Am I allowed to say I am feeling rather macho? I have survived the helicopter ride to the North
I’ve tracked and tried to bring some clarity to the east coast gas debate for 18 months but it’s hard going. The debate is framed in terms of growing supply as the solution to higher prices versus environmental amenity. But nobody ever discusses anything tangible like where the pipelines run and where more NSW and
From the AFR: The US House energy committee has approved legislation to limit the length of review time for liquefied natural gas export applications, in a compromise aimed at attracting bipartisan support for speeding up US gas shipments overseas. The bill, passed by a vote of 33 to 18, would require the Department of Energy
From LNGWorldNews: Progress Energy Canada, Pacific NorthWest LNG and Petronas have signed transaction agreements whereby Sinopec, through its affiliates, will acquire a 15 percent interest in Progress Energy’s LNG-destined natural gas reserves in northeast British Columbia and in the proposed PNW LNG export facility on Canada’s West Coast. As part of the transaction, Sinopec has
From LNGWorldNews: CNOOC Gas and Power Group, a unit of CNOOC, has signed an agreement with a division of BG to partner on the planned Prince Rupert LNG project. The companies plan to conduct a joint study to evaluate a plant with a production capacity of up to 29 million tonnes of LNG per year. Other
A strange alliance has formed between manufacturers being killed by higher gas prices and the gas industry which is doing the killing. Both want more gas. The Australian Petroleum and Exploration Association (APPEA) continues its campaign expand coal seam gas production: Today’s draft decision on regulated gas prices by the Independent Pricing and Regulatory Tribunal
Bloomberg has a credible assessment today of US shale longevity that is worthwhile vis our own LNG boom: The problems arise when you look at how quickly production from these new, unconventional wells dries up. David Hughes — a 32-year veteran with the Geological Survey of Canada and a now research fellow with the Post Carbon
Capital Economics has a nice note out this morning on global gas price convergence. On the supply side: Based on current projections, Australia’s output of LNG will grow from a provisional 21m tonnes in 2013 to 82m tonnes by 2019. The country will overtake Qatar as the world’s largest producer. Less certain, but equally ambitious,
Courtesy of JPMorgan: The LNG cost curve has been rising for the past 10 years as result of more expensive materials (e.g. steel), energy costs, labor and upstream reserves (drilling and development costs). According to our database the most expensive LNG projects, measured on an integrated basis (i.e. including the capital costs of upstream and
I haven’t seen this report but it agrees with my own analysis completely. From the AFR: US exports of liquefied natural gas are likely to undercut the most expensive Australian projects by about 30 per cent, providing healthy margins for owners of the US projects, according to JPMorgan. …It estimates unit costs for Chevron’s $US54 billion