Oz awaits coronation
Australia expected to become world's largest LNG exporter next year, as buyers line up
Australia is nearing the end of a prolonged investment phase which will raise total installed liquefied natural gas liquefaction capacity to 88 million tonnes a year across 10 projects and three states. Once the two final projects—
Shell's Prelude FLNG and Inpex and Total's Ichthys LNG—fully ramp up in 2019, Australia will be the world's largest LNG exporter and a major supplier to gas buyers in Japan, South Korea and China.
But the journey has been long, challenging and costly to everyone involved, and continues to have repercussions for state and federal policy, local consumers and investors.
The uniqueness and complexity of the LNG megaprojects, Australia's sheer geographic size, the sensitivity of its natural environment as well as the country's tight labour force have been huge hurdles for developers to overcome.
As a result, much of the new Aussie LNG coming to market is some of the costliest on the supply curve. Unfortunately, start-up timing has also coincided with a sharp upswing in the production and planned export of cheaper US LNG and cost competitive gas from Qatar and Russia.
Further, a near halving of oil-indexed LNG prices in late-2014, and a short-term surplus of supply in Asia, put downward pressure on contracted prices and buying practices. The next few years could be tough for Aussie LNG.
Oil prices have compounded the high cost of sourcing new coal bed methane (CBM) putting pressure on CBM-to-LNG export projects, notably in Queensland. That's lead to a tightening of the domestic gas market as LNG operators tap third party operations originally intended for local use.
This has caused no end of headaches for Federal policymakers who continue to struggle with the local east coast gas market's exposure to the vagaries of international LNG—which has pushed up prices in the domestic market. In response, at least two companies are now proposing importing LNG into Australia's eastern gas market through floating storage regasification units (FSRUs). That seems unheard of for a nation awash with gas reserves.
Meanwhile, the dynamics of the international LNG market are changing and with it new longer-term opportunities are emerging for Aussie exporters able to reduce their cost base through efficiencies, collaboration and prudent brownfield expansion.
The 16.9m t/y North West Shelf (NWS) LNG export facility, Australia's oldest and largest, is set for a new lease of life as the six joint venture partners tap new supply to backfill a low-cost facility which has largely been paid off.
Realising that low cost is king in international LNG, Woodside is negotiating with its NWS partners
BHP, BP, Chevron, Shell and MIMI to use the facility to export gas to Asian customers from the Scarborough and Browse fields offshore Western Australia.
Further north, in the country's Northern Territory, the low-cost Darwin LNG facility is set for expansion as operator
ConocoPhillips taps new supply from the Caldita and Barossa fields in the Bonaparte Basin to offset falling production from the Bayu Undan field in the Timor Sea.
Meanwhile, Shell has indicated that the Prelude floating LNG project will be completed before August 2018. First gas production at Inpex's two-train Ichthys project is also expected to start around then.
That follows the recent start-up of Chevron's Gorgon and Wheatstone LNG projects offshore Western Australia which will be expanded to meet growing international demand, particularly from China and emerging markets in Southeast Asia.
As a result of the LNG investment boom, Australia's earnings from LNG exports are forecast to increase from A$23bn (US$17bn) in 2016-17 to $39bn in 2022-23. LNG is also forecast to overtake metallurgical coal as Australia's second largest resource and energy export in 2018-19.
Regardless of whether Aussie LNG can match low cost supplies from the US, Russia or Qatar in the years ahead, it will remain a dominant supplier into a growing Asian market for years to come.
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