Wednesday, November 09, 2016

Sun, Sea and Aussie LNG

The Oilholic finds himself 10,600 miles away from London in Sydney, Australia via stopovers in Singapore and Melbourne, for a much needed vacation in the sun. Away from vacationing, one finds oil and gas analysts here in a dour mood given the state of affairs in the market. 

The crude price continues to tumble, and for the record, few here have faith in OPEC’s ability to change that bar a short-term reprieve of some description in tandem with Russia. However, more of an immediate concern to the Aussies is the incremental volume of US natural gas entering the global supply pool to compete with both its and Qatar’s exports to Asia Pacific. Simply put most expect the global natural gas glut to escalate. Long-term contracts seem to be the order of the day, as the Oilholic noted in his comments via a column for Flame conference blog last month.

While pricing arrangements attract a premium to Henry Hub prices stateside, it is prudent to flag up the sub-$3 Mmbtu prices currently being noted. Sources suggest prices for LNG delivery for Asia from Australia aren’t that far off, but a mere $1.20 above Henry Hub, down almost 40% in year-over-year terms from what the country’s exporters were charging Asian importers in 2015.

Problem for Australia is that project sponsors have pumped as much as AUD$200 billion (US$150 billion) to AUD$ 250 billion, over the last decade, towards LNG projects depending on which local industry gauging parameter one uses as a benchmark. Analysts are more inclined to agree with the upper end of the range.

Many of the project commitments and investments were made during the boom times. Some are hard to retreat from in leaner climes. Australian Petroleum Production & Exploration Association (APPEA) says nearly AUD$80 billion worth of LNG projects – namely Prelude, Wheatstone and Ichthys – are under currently under construction.

When in March just as Chevron’s Gorgon LNG project shipped its first cargo, Woodside Petroleum and its consortium partners Royal Dutch Shell, BP, and PetroChina, cancelled the Browse LNG project, having pumped billions into it. Local opponents and environmentalist cheered the decision. However, what ultimately killed the project was the unworkable economics of it all in the current climate.

The decision also came as no surprise to analysts in Australia. There is a natural gas glut, and with the Qataris, Russians and Americans also vying for contracts in the no-longer so lucrative Asian market, most here expect more pain and fewer monetary gains for LNG proponents.

That’s all from Australia for the moment folks! The Oilholic leaves you with a view of the imposing Loch Ard Gorge, part of Port Campbell National Park, Victoria, Australia; a few hours drive from Melbourne, which one had the pleasure of visiting earlier in the week before leaving for Sydney.

The gorge is named after the ship Loch Ard, which ran aground in the region's perilous waters on 1 June, 1878 approaching the end of a three-month journey from the UK to Melbourne. Only two - Tom Pearce and Eva Carmichael - of the 52 passengers and crew onboard survived, creating a local legend. Courtesy of the global gas glut, the Aussie LNG industry faces similar metaphorical perils. Keep reading, keep it ‘crude’!

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© Gaurav Sharma 2016. Photo 1: Bondi Beach, Sydney, Australia. Photo 2: Lock Ard Gorge, Victoria, Australia © Gaurav Sharma, 2016.

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