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
More Brent pain overnight, down another 1% $63.64: The LNG contract estimate is down to $9.56mmBtu: Not much relief for US energy debt: Bloomie is reporting on the bursting high yield shale debt bubble now: Since early 2010, energy producers have raised $550 billion of new bonds and loans as the Federal Reserve held borrowing costs near
From the SMH blog: Origin Energy has given itself a bigger cushion on its funding position to bear the impact of the slump in crude oil prices, by increasing a loan facility to $7.4 billion and lengthening out repayment terms. The company has also sought to reassure the market about the impact of the collapse in crude prices on the
Crikey, from Reuters: China‘s state-controlled energy giant Sinopec wants to sell some long-term liquefied natural gas (LNG) import deals as a slowing economy makes them unprofitable, sources say, signalling the end of a five-year boom fuelled by rising Chinese demand. …”We talk about China choking on LNG. There’s just too much coming onto the market,” said Gavin Thompson, Head of Asia
Well, jeez, catch this falling knife: As I write, Brent oil is sitting at $64, down another 4%. The equivalent LNG contract estimate is $9.64mmBtu: The cause was more OPEC jawboning, from Bloomie: Saudi Arabia’s oil minister gave no sign the world’s largest exporter will cut output on a day when OPEC said demand for its
From The Australian: The WA government, which has already been grappling with the fallout from the sudden and unexpected drop in iron ore royalty income, now faces further pressure as a result of a dramatic 40 per cent-plus fall in oil prices over the past six months. The budget assumptions had modelled for oil to
The Brent price bounced overnight to $68.80 as I speak: The LNG contract price is today $10.05: Bloomie is reporting thoughts of a bottom for Brent: “After yesterday’s solid fall, it’s no surprise that oil is taking a small breather,” Bjarne Schieldrop, chief commodities analyst at Oslo-based SEB, said by e-mail. “The market will remain
Recently, Professor Philip Adams of Victoria University unleashed the Centre of Policy Studies model of the Australian economy upon the question of what higher or lower gas prices would do to the economy and the results were startling.Recall as you read this that with LNG contracts now at $9.96mmBtu, removing the costs for liquifaction and shipping
As I write, the oil plunge has renewed momentum with Brent down nearly 4% in 24 hours to a fresh low of $66.20: The long term chart says it all: The equivalent LNG contract price is below $10 for the first time in five years at $9.96mmBtu: In news, S&P has downgraded Santos: Standard &
The Brent oil price fell a little over $1 Friday night: Much of the big early week short squeeze has been priced out. It remains a firm base case that we’re going $60 at least. The LNG contract price fell to $10.33mmBtu equivalent: The news of the day was a big upgrade to US proved
The Brent oil price got bumped around by the ECB but was essentially unchanged overnight at $69.72: The LNG contract price is still hovering in the mid $10s mmBtu. The news of the night was from Bloomie: Oil market analysts are debating if oil will fall to $50. In North Dakota, prices are already
From the AFR: An analysis published this week by Citigroup put rates of return at Santos’s $US18.5 billion GLNG venture in Queensland down at just 4.4 per cent under a $US60 a barrel oil price, and at 4.7 per cent for Origin Energy’s Australia Pacific LNG project next door. That compares with 8.4 per cent
Just say no to energy! From the AFR: Australian energy producer Santos has been forced to postpone a €500 million ($733 million) hybrid debt raising in Europe and will slash capital and operating expenditure following a slump in oil prices below $US70 a barrel. Chief financial officer Andrew Seaton said the company had decided to
The story of the night was simple enough, the Saudi’s want $60 oil, from the WSJ: OPEC’s biggest oil producer Saudi Arabia now believes oil prices could stabilize at around $60 a barrel, a level both it and other Gulf producers believe they could withstand, according to people familiar with the situation. The shift in
The Brent oil price eased again last night after its huge rebound, sitting at $70.80 as I write: And the long term chart: The contract price of LNG has risen back to $10.63mmBtu: But the January swap future for spot fell 1 cent to a new post-GFC low at $10.08: In news, an AFR article
It’s all eerily familiar, from the ABC: Big gas producers have more to worry about than the immediate problem of tumbling energy prices. Longer term, the great new frontier of China may not produce the bountiful legacy the producers expected, as demand forecasts are cut and both the US and Russia enter an already crowded
Brent oil price had another terrible day on Friday, down more than 3.5% to $70.02: Here’s the long term chart: The equivalent LNG price is now $10.51mmBtu: How low does it have to go? The war on US shale still suggests $60 or so. From Citi, most shale can still produce at $70: $60 it is then. The
The Aitken oil crash is really warming up now. Here’s how the OPEC meeting broke up: Recording its concern over the rapid decline in oil prices in recent months, the Conference concurred that stable oil prices – at a level which did not affect global economic growth but which, at the same time, allowed producers
Markets have conclude that OPEC isn’t going to cut and oil is falling out of bed: Taking LNG contract prices with it, now at $11.47mmBtu: $70 looks like the next support level. Energy stocks are getting creamed with BHP down 1.6% at $32, Santos down 3% at $11.62, Origin dropping 3.3% to $13.16, Woodside falling 2.3% at
The news for the oil price is more weakness, from Reuters: OPEC leader Saudi Arabia signaled on Wednesday it was unlikely to push for a major change in oil output at the producer group’s meeting this week, a day after Russia refused to cooperate in any production cut. Saudi Oil Minister Ali al-Naimi said he
Oil was knocked hither and thither last night as OPEC members muttered about no cuts and tightening discipline on existing targets. Brent is down 2% in the low $78s as I write: The equivalent LNG contract estimate is $11.64mmBtu: The spot market is still weakening as well, down 6 cents to $10.10mmBtu, with sub-$10 in its sights:
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
Lot’s of material news today for LNG and none of it good. The oil price managed a small bounce to $76.50 on the central bank bonfire Friday: That’s got the LNG contract price up to $13.14mmBtu: But the central bank action won’t reverse oil declines, only delay them a bit. From the FT: US imports
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
It was a volatile oil market on Friday night as the IEA bashed crude lower with dour rumblings before the crash in US inflation expectations put a rocket under everything undollar on doubts of rate rises. After reaching a low of $73.25, the oil price ended at $75.80, up $1.70 on the day in what
Woho! When Charlie Aitken called the bottom on the oil price a month ago he triggered a rout. Last night the price collapsed almost 4% to $74.36 as I speak: The cause, via Bloomie: Saudi Arabia’s oil minister dismissed talk of a price war as having “no basis in reality” in his first public comments
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
