By Leith van Onselen From the AFR this afternoon comes news that Canada is ramping-up its LNG export plans, securing an agreement with Woodside Petroleum to develop an LNG gas export facility Prince Rupert on the Pacific coast – one of ten proposed facilities for exporting gas to Asia that would compete against 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.
From The Australian: In a sign that Woodside is becoming increasingly frustrated with suggestions it should have built an onshore plant rather than pursue a controversial floating LNG plan, the Perth-based company said yesterday that James Price Point was uneconomic and pursuing it could have placed the group at risk of collapse. “We invested about
The IEA has released its 2014 Annual Energy Outlook and it sees a lot of US gas: The Annual Energy Outlook 2014 Reference case released by the U.S. Energy Information Administration (EIA) presents updated projections for U.S. energy markets through 2040. “EIA’s updated Reference case shows that advanced technologies for crude oil and natural gas
Not unexpected news today from Chevron which has announced that its monstrous Gorgon LNG project is another $2 billion over budget and will now cost $54 billion. It was originally budgeted at $37 billion. It also pushed back its first gas timetable to mid 2015 from late 2014. This is one reason why we’re seeing
BHP yesterday confirmed that the drift away from Australian LNG goes on: He said greenfield liquefied natural gas projects remained “economically challenged” and signalled BHP was in no rush to move forward with the Scarborough LNG venture with ExxonMobil off WA. While floating LNG is the leading option for Scarborough, Mr Cutt said BHP wanted further study of
In what is shaping up as a fascinating test case for Japanese gumption: WOODSIDE Petroleum chief executive Peter Coleman says he expects critical pricing talks with Japanese LNG buyers to be finalised by April next year amid a joint effort by Asian customers to drive down prices under new long-term contracts. He said Woodside was
From Reuters today: An uncomfortable prospect for global exporters of liquefied natural gas (LNG) will unfold in India this week — buyers from countries that import 70 percent of the world’s LNG will meet to discuss how to get a better deal. …The meetings may herald the early stages of an Asian buyers’ club for
From LNGWorld: Buyers in all four East Asian markets have competed aggressively to secure winter cargoes, putting pressure on limited flexible supplies and driving prices to monthly records. The ICIS EAX December assessment closed on 15 November at $18.525/MMBtu, having climbed $1.425/MMBtu since it opened as the front-month contract on 16 October. Friday’s close also
From the AFR: Approvals for US liquefied natural gas exports are being granted more quickly than anticipated, reinforcing expectations of a “new dawn” in North American LNG, which could capture a fifth of the global market by the end of the decade, according to RBC Capital Markets’ Toronto-based LNG export Greg Pardy. Speaking in Sydney Mr
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
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