JPMorgan has a neat note that follows up yesterday’s Freeport LNG approval: …greenfield US export proposals are likely to face greater scrutiny and more challenges than brownfield proposals. The four projects that have received non-FTA licenses are all existing regas operations which we believe provides significant brownfield economics when converting to a liquefaction facility, specifically
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.
More American LNG approved for Asia today: The U.S. Energy Department (DOE) said that it has conditionally authorized Freeport LNG Expansion FLNG Liquefaction to export additional volumes of domestically produced liquefied natural gas (LNG) to countries that do not have a Free Trade Agreement (FTA) with the United States from the Freeport LNG Terminal in Quintana
Prepare for cost blowouts in QLD’s burgeoning LNG sector. From The Australian: DOUBTS about the ability of Queensland’s coal seams to produce enough gas to feed Gladstone’s LNG export plants are growing, with claims that many wells are not producing as expected and that more gas could be needed. The concerns, which have been rejected
From the US Friday: U.S. Senate Energy and Natural Resources Committee Chairman Ron Wyden urged the Energy Department to use updated data that includes regional factors and domestic costs when considering permits for liquefied natural gas export terminals. In a hearing , Chris Smith, the nominee for assistant secretary of Energy for the DOE’s Office
More on the rapidly diminishing Arrow LNG project today from The Australian: Shell and PetroChina are understood to have told the Brisbane-based Arrow team that the export LNG project, which is also investigating mergers with under-construction Gladstone projects, is not competing well with other potential investment opportunities. “Staff have been advised that we are still
The IEA’s World Energy Outlook is a piece of work. Released yesterday it is a treasure trove of LNG data, completely unreported in Australia, of course. The most important part of the document for the country was an analysis of the US’s growing LNG capability. First, some background: The emergence of North America as an
It’s a good day today for Australian LNG. From the WSJ: Spot liquefied natural gas prices in Asia have risen sharply as power producers have started stockpiling for the winter much sooner than usual this year. The price for LNG for delivery to Asia in the second half of December is around $17.90 per million
For the past year or so I’ve been playing a lone hand in assessing the local LNG boom as something of a bubble. Although the AFR doesn’t use that terminology, it’s edges that way today: The petroleum industry has lost several chances to put common sense ahead of ego, with Gladstone’s Curtis Island a case
From The Australian: FORMER BHP Billiton petroleum chief Michael Yeager says even moderate gas prices on the east coast should generate ample supply for exports and domestic gas, raising hopes that a looming gas price surge will be short-lived. ..Already, new gas supplies beyond 2015 are being quoted at up to $10 a gigajoule, more
While much of the Australian media and commodity analysts in government goggle at the LNG boom, it has taken one small paper, The Gladstone Observer, to render a sober assessment of the prospects of Australia’s last proposed mega-project, Shell’s Arrow LNG on Curtis’s Island: Global investors have become increasingly nervous about the cost of building
Goodness me that Gorgon is a cost monster. From the AFR: Chevron appears to be bracing for another cost blowout at its $52 billion Gorgon liquefied natural gas venture in Western Australia, potentially delaying an expansion of the country’s biggest resources project. Chief financial officer Pat Yarrington told investors in the United States on Friday that
The AFR today offers a long and not bad feature today on the Victorian gas debate which, sadly, again misses the most crucial point of all. First, it offers angry manufacturers: Peter Dobney, group manager of resources and energy at packaging giant Amcor, has blunt advice for the Victorian government on the looming East Coast
An interesting exchange yesterday between US and Japanese gas interests in Singapore: The abundance of gas will have wide-ranging impact on global regulatory policy, the growth of gas markets, and overall economic expansion in Asia, concluded panelists at a lunchtime discussion during the Singapore Energy Summit. At “In Conversation – Gas, The Gamechanger?”, a panel
The Australian LNG boom is under outright attack. From The Australian: THE drift of big Japanese buyers of liquefied natural gas towards US shale gas has continued after Tokyo Electric Power Company finalised plans to increase its US gas imports by 50 per cent. …Japan’s Yomiuri Shimbun says TEPCO predicts the move will save it
A couple of good articles on LNG over the weekend reveal a few truths. At the AFR Angus Grigg and Lisa Murray delivered a solid backgrounder the highlight of which was quotes from Colin Barnett and Ross Garnaut: For West Australian Premier Colin Barnett, this unique situation could bring about growing strategic competition for natural
Cross-posted from The Conversation The Browse Basin off the north west coast of Australia is rich in liquified natural gas (LNG), but questions remain over how best to exploit it. Oil and gas companies and the Australian Federal Government have approved new floating LNG technology (FLNG) which would remove the need for processing onshore on
One of Japan’s pre-eminent business leaders has hit back at criticism from Australian LNG producer Woodside over the Japanese government’s attempts to drive prices lower. From The Australian: Akio Mimura, the chairman of Nippon Steel and co-chair of the peak Japan-Australia business body, said it was wrong to say the Japanese government was intervening in
At last some sense on the Australia gas panic from Morgan Stanley. For some time I’ve been arguing solo that the premisses of the eastern states gas debate are fallacious. Particularly because the desperate push to mine more gas will do nothing to lower prices owing to its more expensive production costs (no matter where
From The Australian: Mark Hanna, senior general manager of LNG pricing at Woodside, told a conference in Tokyo yesterday…Japanese power companies…were posting losses because they were being prevented from raising prices to the extent needed, and from paying reasonable prices for their gas…As a result, power companies were becoming increasingly reluctant to commit to large
By Leith van Onselen For a number of months I have questioned whether the liquified natural gas (LNG) boom will actually be all that beneficial to Australians, who will be forced to endure rising domestic gas prices as most of the bounty from LNG exports flows offshore: With a “gas cliff” expected in 2016 as
The competitors keep coming. From Reuters: DAEGU, South Korea, Oct 16 (Reuters) – Russia expects to liberalize its liquefied natural gas (LNG) exports from Jan. 1, and a bill will be submitted to parliament shortly, Energy Minister Alexander Novak said on Wednesday. Novak also said Gazprom and China National Petroleum Corp (CNPC) are expected to reach an agreement on gas supplies by
From the SMH: Bears have had a field day the past several months now, pointing to the prospects of a surge in gas exports from North America undercutting the economics of the local projects being developed in both Queensland and off Western Australia. This correspondent has long felt the fears were overblown. Now, it seems
The news from the AFR on Australia’s phony gas crisis gets weirder today. From the AFR: The Business Council of Australia is looking to broker a possible deal on the contentious issue of cushioning manufacturers from higher energy prices by ensuring adequate supplies of competitively priced gas are available for local use. On Friday the
From the AFR: The threat of soaring gas prices will not prompt Victoria to more quickly develop potential gas fields on land, Premier Denis Napthine said. …Dr Napthine said Victoria had significant energy options with brown coal and offshore gas as well as wind, solar and wave energy. “We are very blessed with our energy
An interesting development in the Australian gas saga today: CENTRAL Australia’s shale gas potential is drawing growing international interest and could lead US energy giants to sharpen their focus on the country after presiding over an extraordinary gas boom in North America. A leading energy investment bank in Houston, Texas, this week branded the Cooper
A post at the influential a US political blog, The Hill, is worth revisiting for the Australian gas discussion: British Columbia Premier Christy Clark landed in Washington D.C. on Friday to promote Canadian liquefied natural gas. And Japan’s Prime Minister Shinzo Abe two weeks prior made his first official visit to Canada to work on
At the AFR Peter Reith reckons: The public at large has not yet woken up to a looming gas price shock in the eastern states, the chairman of Victoria’s coal seam gas review says. …the former federal minister chairing the Victorian review, told The Australian Financial Review he wanted a “fair deal” for farmers to encourage gas
From The Australian this morning: MALAYSIA has highlighted the risks to the growth of Australia’s liquefied natural gas industry by declaring its intention to push ahead with a $C36 billion ($37bn) plan to build an LNG plant in Canada. State-owned energy company Petronas, one of the founding partners of the Santos-led Gladstone LNG plant, could