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.
Citi today offers some useful analysis of the trillion-dollar question. At what price can Saudi and/or OPEX dislodge US shale oil production? And, by extension, what price are we going to see for LNG contracts for the next few years? In a stand-off between OPEC and US shale, how low can shale go? In a bear scenario,
The FT has some nice coverage of the oil market, Australia’s very important emerging commodity via LNG (on which the comatose Australian press is, as usual, snoring). It begins with some conventional wisdom on Saudi Arabia: By encouraging oil prices to fall, Saudi Arabia is taking a calculated gamble in its already strained relationship with the
Welcome to the joys of being an energy producer. Overnight, oil was smashed lower by almost 5%: It’s way oversold but mid 70s looks like a decent first target for a base on the longer term chart: The cause was the International Energy Agency punching it twice. From the FT: In its closely watched monthly oil
I’ve made the point many times that the shareholders of big miners and the citizens of Australia share very little in common interests despite the grovelling of our media and pollies. BHP proves the point again today, from the SMH blog: Reigniting a sensitive issue between Australian LNG producers and their major customers in Japan,
While Australian pollies are busy flexing over Vladimir Putin, a more subtle reading of events might throw up a different stance. Russia is the driving force behind the Gas Exporting Countries Forum (GECF), the gas OPEC if you will, which is growing firmly: Since the establishment of the GECF in 2001 there has always been
From Reuters: Saudi Arabia is quietly telling oil market participants that Riyadh is comfortable with markedly lower oil prices for an extended period, a sharp shift in policy that may be aimed at slowing the expansion of rival producers including those in the U.S. shale patch. Some OPEC members including Venezuela are clamoring for urgent production cuts to
I’ve just read an outstanding LNG analysis from The Oxford Institute of Energy Studies which included this description of LNG contract pricing: A major challenge facing new Australian LNG projects is that the pricing environment which they are likely to face in Asian markets is changing. Most of the LNG offtake from the projects under construction
Today I’m launching another regular post to cover LNG prices and major developments. I’ll provide the Japan/Korea LNG marker one month swap as a guide to spot pricing. It only moves a couple of times per month so it won’t be every day but I do expect that as global price convergence advances so will
The oil price is taking a shellacking today on the terrible Chinese data, down north of 1%: The weekly chart is already through key support and targeting $85: I was one that thought we would see consistent geo-political premium in prices as Iraq deteriorates. However BofAML has an intersting opposite take today: Islamic State could
From the FT: From Friday big LNG handlers such as Tokyo Electric Power and Mitsubishi Corp will be able to trade non-deliverable forwards – a type of futures contract without any physical settlement – on a new platform called Japan OTC Exchange (JOE), rather than striking private, bilateral deals. …“This new benchmark can give a kind of bargaining power,” said Kosuke Araki, managing
From the AFR: Seven Group Holdings chief executive Don Voelte has raised fresh questions about the viability of $70 billion worth of gas export plants in Gladstone, warning the economics of the industry had become tougher and coal seam gas remained difficult to extract. While the former Woodside Petroleum boss stressed he wished the three massive
From Reuters: Japan’s nuclear regulator gave the go-ahead on Wednesday for the restart of a nuclear power station, the first step to reopening an industry that was mothballed after the Fukushima disaster and which may involve the definitive closure of a dozen old plants. The Nuclear Regulation Authority (NRA) said Kyushu Electric Power’s two-reactor Sendai plant in
The gas debate, if you can call it that, continues to stink up the joint. From The Australian: Energy Minister Ian Macfarlane is negotiating with the states to fast-track a fix to the shortage as domestic gas supplies are redirected to the booming export market while new production is vetoed on environmental grounds. Mr Macfarlane
From the AFR: Woodside Petroleum has stepped up its LNG marketing efforts in India, personally led by chief executive Peter Coleman, but price looms as a major hurdle in securing long-term contracts for the company’s high-cost projects. Mr Coleman, who is among several resources sector chief executives taking part in a government-led trade mission to
From the WSJ: Advisers for liquefied natural gas projects on Canada’s west coast recently passed through Tokyo on an Asia tour to drum up interest for the projects in the energy-hungry region. Joseph Bevash, a partner of Latham & Watkins, acknowledged that less costly LNG projects in other countries could undercut 16 projects proposed in Canada, but
From LNGworldnews: Japanese Prime Minister Shinzo Abe and his Indian counterpart Narendra Modi agreed to extend the cooperation between the two countries on a wide range of areas including LNG. With the goal of recognising the critical dependence of the economies on imported energy sources and the vulnerability to supply shocks, the two Prime Ministers affirmed their
Former Labor stalwarts Greg Combet and Craig Emerson appear at Gina’s Financial Review today to mount another empty argument about gas: Without urgent new coal seam gas development in NSW the state’s industrial gas users will face uncertain supply and price volatility during peak usage periods from 2016. Gas-intensive manufacturing is already migrating from Australia to the
The Australian has an interesting story today on crashing QLD gas prices: QUEENSLAND gas prices have slumped to record lows just as $70 billion of LNG export projects being built at Gladstone start to increase production from thousands of coal-seam gas wells designed to fuel the plants. The flood of cheap gas comes as exporters start
Reuters has great story telling you exactly where the global LNG glut is suddenly at: U.S. oil major Chevron is struggling to lock-in 20-year sales contracts for its Gorgon liquefied natural gas (LNG) export plant in Australia, the world’s most expensive, as buyers spoiled for choice by new suppliers hold out for cheaper deals. …”Buyers
From LNGworldnews: Governor Sean Parnell issued a statement after the U.S. Department of Energy announced the Alaska LNG project is exempt from a new rule changing how the department handles LNG export permissions. The exemption greatly streamlines the Alaska LNG project application. “This is a clear signal the Alaska LNG Project is gaining momentum,” Parnell said. “I
From LNGworldnews: Prices of spot liquefied natural gas for September delivery to Asia plummeted 33.1% year over year to an average $10.702 per million British thermal units (/MMBtu), the latest Platts Japan/Korea Marker (Platts JKM) for month-ahead delivery showed. The drop came as increased supply in the region continued to outweigh lackluster demand. On a
From the WSJ: KUALA LUMPUR, Malaysia–Petroliam Nasional Bhd., Malaysia’s state-run oil and gas company, said Wednesday it is in talks with four potential partners from Japan and the Middle East for stakes in its Canadian liquefied-natural-gas project. The potential partners are conducting due diligence, Petronas Chief ExecutiveShamsul Azhar Abbas said. He declined to name the companies
From LNGworldnews: After the spot LNG prices have, by many reports, hit bottom in the past few months many buyers have returned to the market to stock up for the coming winter period and higher prices expected in October and November. Platts Japan Korea Marker for September delivery rose from $10.525/MMBtu by $0.30/MMBtu over two
Energy advisory Douglas Westwood has report out titled “Australian LNG – A Lost Cause?”. Recent news headlines on the liquefied natural gas (LNG) sector in Australia seem to be centered around its unsustainable rising costs. Woodside Petroleum had to ditch plans last year for its Browse LNG plant, which had gone way over budget at an estimated
The AFR reported over the weekend that: Chevron has insisted it will take the risk of selling a chunk of LNG from its $US54 billion Gorgon project in Western Australia into the spot market rather than accept lower prices under contract sales as it struggles to sign up long-term customers who are holding out for
Uncle Sam is on an LNG tear. Overnight the US Department of Energy (DOE) approved another new LNG project for exports and this time it’s a greenfields project in Oregon,suggesting even more could be in the pipeline OregonLNG will have a capacity of 9 million tonnes per annum (mtpa) and begin shipping in 2019. That takes
The AFR’s John Kehoe has an interesting piece today on LNG: Australia is setting an example to the United States Congress: how not to open up an energy market. Manufacturing companies and their lobbyists are briefing legislators on Capitol Hill that Australia’s natural gas prices have tripled because of the extra demand from overseas buyers. Congressional Republicans
From Reuters today: Asian spot liquefied natural gas (LNG) prices edged lower last week as buyers low-balled sellers amid ample supply from Papua New Guinea and Australia, while bets of a winter price pickup spurred some into floating storage plays.Spot LNG prices for September delivery slipped slightly to $10.50 per million British thermal units (mmBtu)
I don’t see this kind of stuff happening here. Everywhere but here perhaps: The Province of British Columbia and the National Energy Administration of the People’s Republic of China signed a Memorandum of Understanding (MOU) on Thursday to strengthen energy trade and investment. “The continued growth of our economies depends on foresight and partnership,”said Premier Christy