Australian LNG set to ride out low price storm, report

Dec 4, 2015

Australia’s LNG projects will still continue to be very profitable despite the current low commodity prices, according to one of Australia’s leading energy industry analysts.

Dr Graeme Bethune, Chief Executive Officer of EnergyQuest, believes the rapid growth in the Australia’s LNG production is unlikely to be affected by the global slump in oil and gas prices.

Releasing the 40th edition of the EnergyQuest quarterly report on the Australian energy sector, Dr Bethune said that while LNG prices are much lower than they used to be, the new Australian projects are still likely to generate loads of cash, just like the existing projects, and the producers will want the projects to produce as much as they possibly can.

Dr Bethune said the breakeven operating cost for new Australian projects is quite low, typically below US$4 per million British thermal units (MMBtu). It is even lower for established projects: the North West Shelf, Darwin LNG and Pluto.

“Notwithstanding low oil prices and the LNG oversupply, LNG prices are still well above US$4/MMBtu,” Dr Bethune said.

The new report quotes the average prices realised by the North West Shelf and Pluto in the September Quarter of US$7.20/MMBtu and US$9.12/MMBtu respectively.

It also notes that most of the volumes from new Australian projects are pre-sold under long term contracts. The report estimates that only 4.9 million tonnes per annum (Mtpa) remains uncontracted out of the full 62.3 Mtpa capacity of the new Australian projects.

“We expect the Australian LNG projects will still produce uncontracted volumes for spot sales. Even at low spot prices, these cargoes are still likely to generate valuable cash,” Dr Btehune said.

The report notes that there is no let-up in the pace of Australian LNG development showing that spending on Australian oil and gas development, mostly LNG, was A$10.9 billion in the September Quarter.

“While spending was down from its peak at the end of 2013, A$10.9 billion is still a lot of investment dollars,” Dr Bethune said.

And while the fall in the oil price has temporarily dented Australia’s LNG export revenue, revenue is rebounding as new projects come into production. After reaching a record A$1,722 million in January 2015, Australian LNG exports slumped to A$821 million in May.

However by September, they had jumped to A$1,373 million and will continue to grow as new projects come into production. The Queensland LNG projects have already exported over five million tonnes since the QCLNG project commenced production at the beginning of the year. It has now been joined by GLNG and APLNG is just around the corner.

“LNG is becoming an increasingly important Australian export,” Dr Bethune said.

“In 2014-15, LNG export revenue overtook thermal coal for the first time, with LNG exports of A$16,924 million compared with coal of A$16,062 million.”

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