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Prices stay strong for Australian LNG

LNG Industry,


The Australian government’s Bureau of Resources and Energy Economics released the following statement on prices, developments and projects in Australia’s LNG sector in its Resources and Energy Quarterly (June):

Prices

Prices for delivered LNG into Northeast Asia largely increased over the March quarter compared to the previous quarter. Japanese landed prices rose from US$16.4 a gigajoule in December to AU$ 17.6 a gigajoule in March. South Korean and Chinese prices for delivered LNG also increased, but more moderately over the past six months. These price rises were mostly due to higher oil prices, which are the basis for pricing LNG contracts, as spot trading was flat (in a tight market spot cargoes tend to command a significant price premium on contracted volumes). Higher values for LNG delivered into Northeast Asia are reflected in higher average realised prices reported by the North West Shelf (NWS) project, which rose from AU$1 3.6 a gigajoule in December to AU$ 14.2 a gigajoule in March.

Over the short-term, Northeast Asian spot and contract prices are expected to ease. High inventories, after a milder than expected Northern winter, and anticipation of a similarly mild summer should subdue spot prices (as spot cargoes are contracted in advance of delivery, prices tend to reflect buyer expectations). Concurrently, easing oil prices are forecast to contribute to lower contract prices. Surplus volumes at a number of regional LNG export projects, including Bintulu in Malaysia, Australia’s NWS and Papua New Guinea (PNG) LNG, are also expected to contribute to softer prices.

Global LNG developments

There have been two major developments in global LNG markets recently. PNG LNG, a 6.9 million tpa project operated by ExxonMobil, started ahead of schedule and delivered its first cargo in May. PNG is now the sixth largest LNG exporter in the Asia-Pacific region. The project is expected to sell a small number of cargoes into regional spot markets in coming months prior to contracted deliveries to Sinopec (China), CPC (Chinese Taipei), and TEPCO and Osaka Gas (Japan) starting in September or October.

A major pipeline deal between Russia and China was also announced in May (although this will not affect Chinese LNG imports over the forecast period). Under the AU$ 400 billion agreement, Russia will supply China with up to 38 billion m3 of gas a year for 30 years from 2018. Gas will be piped from fields in Central and Eastern Russia to China through the Northeast border near Heihe and to Vladivostok. Not only does pipeline gas represent a substantial low cost competitor to LNG supply to China in the medium to longer term, it is expected to considerably improve the viability of Vladivostok LNG (a planned 10 - 15 million tpa project) and LNG plant expansions (or new projects) at the nearby Sakhalin fields.

LNG imports by Australia’s key trading partners increased in the March quarter. Imports to Japan, China and South Korea were all above December levels, largely due to seasonal buying (volumes were almost unchanged when compared to the March 2013 quarter). Northeast Asian demand is expected to ease over the remainder of 2014 due to high inventories going into summer. Increased regasification capacity in Japan, China and South Korea along with the start-up of new LNG export projects in PNG and Australia is expected to ease market tightness and support import growth later in the forecast period. Asian LNG imports (including India) are forecast to grow from around 168 million t in 2013 to 182 million t in 2015.

Australian production and exports

Australian gas production was 15.0 billion m3 in the March quarter, a slight decrease on December production. BHP, Santos and Origin all reported lower production volumes at key basins (Gippsland, Cooper, and Otway respectively). This was largely due to some natural decline in field performance and planned operational downtime in these basins, as well as to lower seasonal demand, particularly on the East Coast. In the Western market, the NWS project increased domestic production in response to higher demand, but most other producers reported lower output.

Gas production is estimated to be around 62.1 billion m3 in 2013 - 14, unchanged from 2012 - 13. This is a result of a flat domestic market combined with an export sector running close to capacity. However, production is forecast to grow in 2014 - 15 as the first of Australia’s seven LNG projects currently under construction are slated to begin operations. Queensland Curtis LNG (QCLNG), at 84% complete in March, is the most advanced and is expected to begin production in December 2014. It will add 8.5 million tpa of LNG export capacity when fully operational and will be the first project to export LNG from coal seam gas anywhere in the world.

Gladstone (GLNG) and Gorgon LNG, both 80% complete in March, are expected to achieve first LNG by June quarter 2015 (and will comprise another 24.3 million tpa of capacity when fully operational). These three projects represent the first stages of a significant expansion, which is forecast to increase Australian gas production to 68.4 billion m3 in 2014 - 15. The other four projects under construction are expected to be completed beyond the forecast period.

Australia exported 6.0 million t of LNG in the March quarter, unchanged from December. Slight increases in production at Darwin LNG and the NWS project due to improved plant reliability were offset by lower production from Pluto LNG caused by poorer plant performance. Total export volumes for 2013 - 14 are estimated to be relatively flat at 23.8 million t (compared with 23.9 million t in 2012 - 13). LNG export volumes are forecast to grow by 13% in 2014 - 15, to 27.0 million t, with the start-up of the QCLNG, GLNG and Gorgon projects.

LNG export values grew strongly in the March quarter to AU$ 4.4 billion, from AU$3.8 billion in the December quarter. This was a result of favourable contract renegotiations at Pluto and slightly higher oil-linked contract prices generally, which offset flat export volumes. Total export earnings for 2013 - 14 were an estimated $16.1 billion, a 14% increase on the AU$ 14.0 billion in exports in 2012 - 13 (in real 2013 - 14 dollars). This growth is largely due to the depreciation of the Australian dollar, as export volumes are almost unchanged. Export earnings are forecast to continue growing, reaching $18.9 billion in 2014 - 15. In contrast to 2013 - 14, this expected 15% growth in export values in 2014 - 15 will be due to increased volumes, as exchange rates and oil prices are expected to ease only slightly.

Click here to read the full Quarterly.


Adapted from press release by Ted Monroe

Read the article online at: https://www.lngindustry.com/lng-shipping/26062014/report_by_bureau_of_resources_and_energy_economics_revealed_quarterly_lng_results_for_australia/


 

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