Australia’s exports of liquefied natural gas are holding at near-record levels, defying a global supply glut that has swamped the market, causing prices to crash and driving the cancellation of cargoes from the US.
LNG production from the country’s plants on the north-west and eastern coasts rose in the March quarter by 11 per cent from the year-earlier quarter to 19.9 million tonnes, and was only marginally below the record levels of the second half of 2019, according to the latest analysis from consultancy EnergyQuest, released on Friday.
The high level of exports came despite the ongoing shutdown of Shell’s Prelude floating LNG plant off the far north coast of Western Australia, which has been out of action since early February due to a power fault and is expected to take several months to resume production.
Queensland’s LNG exports remained at a high level in the first quarter, then hit a monthly record in April of two million tonnes, despite the contraction of economic activity due to COVID-19.
But the buoyant exports didn’t come at the cost of domestic gas prices, with average spot prices in the March quarter down 42 per cent from a year earlier at $5.72 a gigajoule – the lowest for four years.
Domestic prices softened further in April to $4.64/GJ, less than half of where they were in April 2019.
EnergyQuest said the resilience of Australia’s exports was underpinned by continued growth in demand in north Asia, while rising consumption in Korea, China and Taiwan more than offsetting a dip in Japan.
The Adelaide-based company is expecting total LNG export revenues to reach about $50 billion this financial year, similar to last year, although it forecasts a slump of as much as $20 billion in 2020-21 as the impact of lower prices hits.
But the COVID-19 pandemic and the plunge in oil prices have taken a huge toll on future growth in the industry, with EnergyQuest calculating that $60 billion of LNG investment across five major projects have been put on hold.
Australia’s five largest oil and gas companies slashed about $6.2 billion in short-term spending between them after the collapse in crude prices, putting a range of projects in limbo, including Woodside Petroleum’s Scarborough, Pluto-2 and Browse ventures, Santos’ Barossa project, and the Crux LNG project involving Shell, Osaka Gas and Seven Group Holdings.
Shell’s decision in April to proceed with the first part of its $10 billion Arrow onshore gas project on the east coast with partner PetroChina bucked the trend.
EnergyQuest said that while the job losses had not been as savage as in the last oil price crash in 2014-15, there had been a significant round of redundancies in the industry.
Australian LNG cargoes have been sold overseas at record low prices, with EnergyQuest pointing to two cargoes sold from Inpex Corporation’s Ichthys LNG plant in Darwin for $US1.70-$US1.75 per million British thermal units.
But it said while there may be some reduction in LNG output due to low prices and oversupply, it was unlikely that any production trains would be temporarily shut down due to low prices.
“Most Australian LNG is sold under long-term, oil-linked contracts and oil prices would need to remain very low for a considerable period for there to be shut-ins,” the report said, pointing to indications that west coast LNG projects are cash flow positive at oil prices above $US15 a barrel, and east coast projects above $US25 a barrel.
Brent crude was trading just below $US40 a barrel on Friday.
Extracted from AFR