Tuesday 10 April 2012

Australian energy exports threatened


US price slide hits LNG projects as prices become more appealing
AUSTRALIA'S liquefied natural gas export growth is being threatened by a continued slide in US natural gas prices that is making North American LNG projects more appealing and is set to weigh on global gas export pricing.


10 April, 2012

The continuing drop in prices comes as Britain's BG Group puts a greater emphasis on US exports than an expansion of its $20 billion Queensland Curtis LNG plant as a way to meet its medium-term LNG volume targets.

A key measure of natural gas prices in the US, the Nymex Henry Hub gas futures, closed last week at $US2.09 per mmbtu (million British thermal units) ($US1.98 per gigajoule), down 30 per cent since the start of the year and 50 per cent since the start of August, the month BHP Billiton completed its $US15.1bn purchase of US shale gas company Petrohawk.

Prices could easily slide below the $US2 mark, with a Bloomberg analyst survey showing 50 per cent are expecting further price losses this week as a US domestic supply glut caused by surging shale-gas production and a mild winter continue to weigh on prices, versus 30 per cent expecting gains. The noise around prospective gas exports to Asia from the Gulf of Mexico, Canada and Alaska, has been steadily growing over the past six months, as long-term forecasts for Henry Hub gas continue to slide.


In BG's February earnings presentation, an expansion of QCLNG was replaced by Henry Hub-linked LNG purchases from the Sabine Pass project in Louisiana as BG's main growth option.

This leaves a third train at Gladstone competing with another potential Louisiana project -- Lake Charles -- and one in Tanzania to make up the remainder of BG's 2020 LNG targets.

On top of competition through extra projects and potential LNG export volumes, calls from Asian gas buyers to link LNG sales to cheaper US gas prices, rather than the soaring oil prices that recent Australian LNG contracts are linked to, could affect the viability of yet-to-be approved Australian projects or expansions.

Last week, news service Platts quoted the president of Osaka Gas, which has contracted to buy gas from the Gorgon and Ichthys LNG projects in Australia, as saying the company was looking at importing North American LNG through prices linked to gas benchmarks. That report followed a Bloomberg report a week earlier where an Osaka Gas official said a previous plan to invest in LNG projects, mainly in Australia, probably would be affected by plans to invest in North America.

India's biggest gas importer, Petronet, has also said price negotiations are taking into account US gas prices.

Energy analyst Graeme Bethune, who runs consultancy EnergyQuest, said that while the US and other new supply areas were an issue for Australian projects, growing demand for LNG following the Fukushima nuclear disaster would offset this to some extent.

"But Australian greenfields projects are facing more competition than they were 12-24 months ago, not just from the US, but from Canada, East Africa and expansions of Australian brownfields projects," Mr Bethune said.

He said while it was unlikely Asian buyers would abandon oil-linked LNG contracts, depressed North American prices and growing exports could increase LNG's discount to oil prices.

At US gas prices of $US4 per mmbtu, Mr Bethune said gas could be delivered to Korea at $US10.40 per mmbtu.

This still leaves a tidy margin when current Asian prices are near $US16.

The US's Cheniere Energy is planning 18 million tonnes of annual LNG exports from Sabine Pass by 2017, by which time the Panama Canal will have been widened to take LNG tankers, while more than 20 million tonnes of annual capacity is being considered out of Vancouver.

BG, which has agreed to buy 5.5 million tonnes a year of Sabine Pass LNG, is also trying to get the US government to approve 15 million tonnes of exports from Lake Charles to countries that do not have a free trade agreement with the US.

BG believes there is the prospect for the US alone to export up to 45 million tonnes a year of LNG by 2020.

Despite this being more than double the amount of LNG Australia now exports, BG says it does not believe this will have a significant impact on long-term Henry Hub gas prices.

No comments:

Post a Comment

Note: only a member of this blog may post a comment.