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The Australian-based gas exporters

There are seven Australian- based Liquid Natural Gas (LNG) projects coming on stream over the next five years, which have a combined capacity of 83.2 billion cubic metres (bcm) and account for around 60% of the 138 bcm under construction worldwide. These are:

ProjectMillion Metric TonnesBillion Cubic MetresNumber of trainsMajor ownersExpected to commence
Queensland CurtisCSG to LNG8.511.62BG, CNOOC, Tokyo Gas2014/2015
Gorgon LNG15.620.43Chevron, Shell, Exxon Mobil2015/2016
Gladstone CSG to LNG7.810.62Santos, Petronas, Total, Kogas2015/2016 
Australia Pacific CSG to LNG9.012.22Conoco Phillips, Origin, Sinopec2015/2016
Wheatstone8.912.12Chevron, Apache, KUFPEC, Shell2016/2017
Prelude Floating3.64.91Shell, Inpex, Kogas, PCP2017
Ichthys8.411.42Inpex, Total2017/2018
TOTAL61.883.2

 

The current crop of LNG projects under construction represents a combined $188 billion in investment. Aggregate revenue from LNG is expected to increase five fold over the next five years to at least $60 billion per annum.

Australian LNG projects are now costing close to US$1,500/tonne of capacity, compared to US$200/tonne in the year 2000 and US$600-$900/tonne in the US. Unless the industry cost structure changes and productivity improves, there are unlikely to be any new offshore ‘green fields’ LNG projects, except for floating LNG facilities.

Floating LNG facilities are a new technology, and are expected to drive 35% to 50% ‘life of field’ cost savings. These are to be introduced at Shell’s 3.6 million tonne per annum (mtpa) Prelude field and Petronas' 1.2 mtpa Kanowit, Malaysian field from 2016-17.

There are no platforms, pipelines, shore-based liquefaction and storage facilities, roads, jetties or dredging requirements.

As the floating LNG technology expands over the long term to service the 140 trillion cubic feet of Australian stranded gas (according to CSIRO), it is likely the Australian resource service companies will be somewhat bypassed for the massive Korean builders and their sub-contractors.

That’s fewer jobs for Australians. The Australian government, however, should do well from the additional tax revenue it will receive from Australia’s vastly expanding LNG exports.

Japan is now the world’s largest LNG buyer, with its gas demand boosted by nearly 25% after shutdown of all nuclear power generating capacity after the Fukushima nuclear disaster in March 2011.

While Australia has benefited, Japan is about to sign with three LNG handling terminals in the US to start shale exports of almost 20 mtpa from 2017. This means the US, traditionally an energy importer, will soon become a competitor in the export LNG market. For context, Japan and South Korea combined import 120 mtpa.

The Japanese are trying to change the pricing model for LNG. Rather than being linked to the oil price index, they instead want it based partly on the US domestic gas price, as measured by the so-called Henry Hub price. This has fallen to multi year lows at around US$3.50 per MBtu as the US shale gas boom has opened up vast reserves of LNG. Even adding the cost of liquefaction, shipping and regasification, the US landed price could potentially arrive at a significant discount to the current Japanese import price.

So what is the Henry Hub price? The Henry Hub itself is located in Louisiana, near the US Gulf Coast, and is the site where a number of major interstate gas pipelines converge and large storage facilities are close at hand. It is a major trading point for the physical delivery of gas and the major marker price for North American gas.

The Henry Hub price is the major reference for the NYMEX gas futures market. BP Singapore is currently negotiating to supply a Japanese customer at a gas price linked to the Henry Hub price, even though the gas may not be supplied from the USA.

Asian LNG buyers are naturally encouraging greater supply from the US, Canada and Russia. Australian producers, which currently sell 70% of their LNG exports to Japan, will be watching this space with interest. As will Australian resource investors.

Roger Montgomery is the founder and Chief Investment Officer at The Montgomery Fund, and author of the bestseller ‘Value.able


 

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