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

4

Russia moves to supply Asian gas

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

1

Why can’t Kogas sell its GLNG stake?

Korea’s KOGAS has been trying to offload a stake in the Queensland GLNG project for a year or so. It has emerged as well that it is also aiming to sell down it’s equity in Canada’s Kitimat project. From the WSJ: The move comes in the wake of South Korean government demands that state-run energy

5

Those stinky gas bears!

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

1

Interests to gather at the gas honeypot

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

0

Victoria to go slow on gas?

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

4

Australian shale gas a new honey pot?

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

1

Canada adds heat for more US LNG

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

4

North America seizes the LNG boom

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

8

NSW gas debate doesn’t add up

From the AFR: Any hopes that the new consensus on the urgency of New South Wales’ natural gas problem would lead to softer rules for coal seam gas have been dashed. Much to the frustration of CSG companies, in particular AGL Energy, the NSW government has cemented the 2-kilometre buffer zone around residential areas. Indeed, the

1

No fracking way, says NSW

Cross-posted from The Conversation. New South Wales has introduced new rules for coal seam gas, meaning the state now has some of the strongest regulation in the country. The rules set aside 2.8 million hectares of important agricultural land – including vineyards and equine properties – that must be rigorously investigated before coal seam gas (CSG) projects

1

Wheatstone strikes Japan supply deal

Some good news for Australian KNG today. From the WSJ: Tohoku Electric Power Co. 9506.TO -0.83% has committed to a 20-year deal to buy more liquefied natural gas from Australia, reinforcing the country’s position as the biggest LNG supplier to Japan at a time that the world’s largest user of the fuel is debating whether to resume nuclear-power production.

1

Now Canada cuts Australia’s LNG grass

Everyone is signing LNG deals right now, except us. From Platts: Canada and Japan agreed Tuesday to launch a bilateral energy ministerial meeting at the “soonest possible time” aiming to speed up realization of potential LNG supplies from the North American country, a source at Japan’s Ministry of Economy, Trade and Industry said Wednesday. …The

5

Barnett blocks Browse

WA Premier Colin Barnett is not happy with Woodside. From The Australian: …”Woodside has had very little contact with the state government over the last couple of months,” Mr Barnett said yesterday. He said he believed the state had real leverage over the Browse project because it owned 30 per cent of the project’s biggest

16

Another US gas plant “alarms” Australian LNG

From The Australian: THE US government has given a fourth LNG plant approval to export to Asia’s big gas buyers, bringing the level of approved exports from the nation’s overflowing gas market to 50 million tonnes a year — double Australia’s current production. The fourth approval, of a Maryland plant planned by Dominion Resources, came

0

LNG war heats up

More grist today for the LNG debate from The Australian where ConocPhillips, builder of QLD’s APLNG project, is quoted: In a speech to an industry conference in Darwin yesterday, Conoco’s head of commercial in Australia, Mike Nazroo, warned that supply tightness might prove short-lived. “In the longer term, capacity additions look set to catch up with, and

14

Japan and Australia declare LNG war

From AAP: At an LNG producer-consumer conference in Tokyo on Tuesday, the world’s largest importer of the fuel, industry minister Toshimitsu Motegi complained about a so-called “Asian premium”. …”Increases in fuel procurement costs impose a heavy burden on the Japanese economy,” he added. …That is because the region’s contracts are often long-term and linked to

33

Should Australia have a gas reservation policy?

By Leith van Onselen Last month, the Australian manufacturing industry is stepped-up lobbying efforts to have a proportion of Australian gas supplies set aside for domestic use, as occurs in the United States and Canada. Specifically, the Australian Industry Group (AIG) released a report warning of a looming domestic “gas crisis” and seeking a “national

16

Has Australia built a $200 billion dud?

For the past 12 months I have argued that Australia’s LNG boom is looking rather like a bubble, built on unrealistic extrapolations of demand, overly cheap finance, wildly inflating costs, a stampede for supply all adding up to wildly inflated asset values and, ultimately, poor returns on bubble pricing. It is now facing off with a giant

1

LNG battles its bubble

From The Australian, it appears that for the time being Australian LNG is winning the price battle with Japanese customers: Woodside Petroleum chief Peter Coleman said recent LNG price negotiations, which included price resetting over the Pluto LNG plant with Japanese buyers, were as hard as they had ever been, despite contract talks being limited

3

The hot air under US shale gas

Cross-posted from Kate Mackenzie at FTAlphaville. The US shale gas production boom took everyone by surprise — apparently thatincludes George Mitchell himself, who was credited for sparking the shale gas production surge on his death last month. Yet the variety of output from different shale gas plays is also taking some by surprise. Like Shell, for

4

Woodside aims for 2015 Browse FLNG

From the AFR: Woodside Petroleum has revealed it is aiming for a go-ahead in mid-2015 for a huge floating liquefied natural gas project for its Browse gas in north-west Australia involving three of the massive vessels. The outline of the project, unveiled in Woodside’s full-year results presentation on Wednesday, involved phasing capital expenditure to reduce risk and

0

New blow to Barnett’s onshore LNG push

By Leith van Onselen The Western Australian Premier, Colin Barnett’s, hope of having the proposed Browse liquified natural gas (LNG) project developed onshore rather than via an offshore floating LNG facility has today been dealt a significant blow with lead proponent Woodside recommending a floating offshore project to its joint venture partners. From the Australian:

12

Chevron wants a pin for its LNG bubble

So, it’s suddenly a little more clear why Chevron has become an election football: As Chevron’s $52 billion Gorgon project became embroiled in the ­election campaign, trade union officials accused Chevron of seeking to dodge responsibility for poor labour productivity and high costs. The union’s demands for employees working for 19 offshore oil and gas contractors around

9

RBA pumps gas propaganda into your pipes

Wow, this is poorly thought through on pretty much every level. From the AFR: The world’s biggest energy companies have launched a multimillion-dollar advertising blitz warning that high costs could jeopardise the $150 billion gas boom, in a campaign reminiscent of the mining tax fight. The Australian Petroleum Production and Exploration Association (APPEA) campaign warns approval

15

Haliburton confesses

A quick aside from Dick Cheney’s old mob from Reuters: Halliburton Co has agreed to plead guilty to destroying evidence related to the 2010 Gulf of Mexico oil spill, and will pay the maximum possible statutory fine, the U.S. Department of Justice said on Thursday.

3

More LNG suddenly possible?

From Angela Macdonald-Smith at the AFR: Judging by the headlines, the outlook for the Asian liquefied natural gas market is bleak. But that’s not the message from those much closer to the action. …flying under the radar has been a dramatic shift in policy toward gas pricing by China and India, the world’s biggest growth

5

Fracking blockages

A recent note from Citi gives a good round-up of the barriers to expanded gas and oil fracking in Australia as presented at recent conference. Investor “ESG” Perspectives We have focused this note on issues relevant to clients (fund managers and superannuation funds) who are looking at the unconventional gas industry from an “ESG” (Environmental,