Australian LNG

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.

Also check – Daily Iron Ore Price, Australian Dollar

9

Another Canadian monster LNG project gets tick

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

4

The bizarrely bad gas debate

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

0

US passes law to speed LNG exports

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

0

China backs another Canadian LNG major

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

1

China backs monster Canadian LNG project

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

15

Baptists and bootleggers back gas lie

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

12

Will a US shale bust save Australian LNG?

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

3

The global gas price convergence

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,

4

FLNG tanker loading

Here’s the latest in our series of pics and video’s for LNG mega-projects, this time an animation of how FLNG is transferred between mother ship and tanker. Fascinating but not something that looks very comfortable in anything other than smooth seas!

3

The LNG cost curve

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

19

Lego Prelude

Following yesterday’s Prelude video, today we get Prelude lego: Apparently it took two people one month to build. Given how much high labour costs are hurting, they missed a trick when they didn’t offer the gig to my  five year old boy…

15

Gas reservation junked as “ideological claptrap”

From Business Spectator, Industry Minister Ian Macfarlane has junked proposals for domestic gas reservation arguing that: “There is no good reason for reservation policy. It is ideological claptrap,” Mr Macfarlane told reporters on the sidelines of the APPEA conference in Perth. “You haven’t got the gas in NSW to reserve and in Western Australia, if

4

Australian LNG in the pricing gun

The AFR has an interesting piece on the ongoing conflict between LNG buyers and sellers over pricing regimes: The head of Japan’s quasi-national oil company Inpex Corporation fears a “lose-lose” result in the global liquefied natural gas market unless producers and suppliers resolve their differences over supply, demand, and pricing. Toshiaki Kitamura will tell the

2

LNG junket’s deliver the gas

Ah yes, the junket, an age-old way to get positive coverage of your issues in the media. Today we have masterful execution of such from the Australian Petroleum Production & Exploration Association (APPEA) with it’s finger prints all over Fairfax’s LNG coverage. First it’s Jennifer Hewitt: For a man responsible for more than $80 billion worth of

0

Canada approves huge LNG charge

From Platts today, Canada has approved four huge LNG export terminals all on its West coast: The four facilities–Pacific Northwest LNG, Prince Rupert LNG, WCC LNG and Woodfibre LNG–were previously approved by Canada’s National Energy Board in December 2013. The licenses cover the export of up to 73.38 million mt/year of LNG, or about 3.43 Tcf/year.

6

Farmers win reprieve on coal seam gas

By Leith van Onselen Last year’s 60 Minutes investigation into coal seam gas (CSG) provided an eye-opening account of Australian farmers being forced to allow CSG mining on their land against their will. Today, The Australian reports that Santos and AGL Energy will pledge to the New South Wales Government that they will not enter

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NSW puts the clamp on coal seam gas

By Leith van Onselen In a move that is certain to infuriate the oil and gas lobby, the New South Wales Government has announced that it will freeze coal seam gas (CGS) exploration applications for six months, review existing licences, and significantly increase licencing fees. From The Guardian: The Premier, Barry O’Farrell, accused the former

3

US debates total LNG export freedom

From LNGWorldNews: U.S. Subcommittee on Energy and Power examined H.R. 6, the Domestic Prosperity and Global Freedom Act. The bill will accelerate approvals of U.S. LNG exports to American allies. The legislation facilitates automatic approvals of all export applications that have been noticed in the Federal Register and modifies the process moving forward so that

6

US approves another LNG export competitor

And on it rolls: Veresen said that it has received a conditional order from the U.S. Department of Energy (DOE) to export liquefied natural gas from the proposed Jordan Cove LNG export terminal to those countries that do not have Free Trade Agreement (FTA) status with the United States. Under the DOE order, Jordan Cove

1

Korea mounts assault on LNG contracts

Australia’s North Asian customers seem quite comfortable with the idea that LNG contracts need to be broken. From LNGWorldNews: Changes in the pricing structure of natural gas and LNG are needed if Asia is to take full advantage of the “golden age of gas,” senior Korean officials told the Gastech 2014 VIP programme that was

2

US schedules LNG export liberalisation hearing

From LNGWorldNews: The Subcommittee on Energy and Power, chaired by Rep. Ed Whitfield (R-KY), has scheduled a hearing for March 25 to review H.R. 6, the Domestic Prosperity and Global Freedom Act. In response to Russia’s recent aggression and DOE’s slow export approval process, Rep. Cory Gardner (R-CO) introduced H.R. 6 to expedite exports of

11

IEA: Nobody will invest in Australian LNG

From the AFR: US natural gas prices could rise by more than half and LNG exports would still match up economically against supplies from traditional shippers to Japan such as Australia, according to the International Energy Agency’s head of global gas markets research. Speaking in Sydney on Thursday, Anne-Sophie Corbeau, senior gas analyst at the Paris-based