Australia LNG exports to drop by $17 billion for 2020-21

Australia’s Department of Industry, Science, Energy, and Resources stated in its Resources and Energy Quarterly that the country’s LNG shipments dropped by 12 per cent year-on-year and noted the pressure on the country’s LNG export volumes in recent months.

The wave of
LNG investment in Australia saw over $200 billion invested in seven new LNG projects,
which all began operating between 2014 and 2019. The ramp-up of these projects
saw Australia’s annual LNG nameplate capacity reach 88 million tonnes.

However, the
report claimed that Australia’s LNG shipments between June and August were 12
per cent lower year-on-year. As a result, Australia’s average capacity utilisation
rate is expected to fall slightly in 2020. According to the report, some buyers
exercised their rights to reduce contracted purchases by around ten per cent in
2020, with some of these replaced by cheaper spot cargoes.

Cargoes have
also been delayed, several plants have undergone extended maintenance, and two
LNG plants have faced technical issues.

More precisely, the Prelude FLNG project — which shipped its first cargo in June 2019, but had not yet reached its full nameplate capacity of 3.6 mtpa — has been temporarily shut since February 2020, due to technical issues.

Shell has
indicated that the process to restart operations started, but has not announced
an official production restart date.

Gorgon’s production has also been disrupted, with the shutdown of Train 2 extended to October, after cracks were discovered in its heat exchangers.

A shutdown
of the whole plant was avoided, with phased shutdowns instead – Train 1 and 3
are expected to be taken offline for inspections in October 2020 and January
2021, respectively. There is a risk of extended shutdowns if further cracks are
discovered.

Australia’s
LNG exports are forecast to decline from 79 million tonnes in 2019–20 to 76
million tonnes in 2020–21, reflecting the impacts of COVID-19 on demand as well
as the abovementioned technical issues.

LNG exports
are forecast to recover to around 80 million tonnes in 2021–22, as the impacts
of COVID-19 and technical issues ease and Prelude ramps up towards nameplate
capacity.

The Department
added in the report that a production halt at the Darwin LNG plant would weigh
on export volumes in 2022, as gas from the Bayu-Undan field is exhausted.

It is worth
noting that Santos is advancing plans for an infill drilling program, which could
extend the life of the field and narrow the time between its depletion and
start-up of the Barossa backfill project. An FID for the Barossa project has
been delayed from 2020 to an unspecified date.

The
Department stated that the outlook for the next wave of investment in
Australian LNG projects was still unclear with weak market conditions resulting
in capital expenditure reductions, write-downs, and FID deferrals.

For example,
the Darwin and North West Shelf projects will require new gas field developments
as backfill from as early as 2021.

LNG export
earnings in Australia are forecast to fall sharply, from $48 billion in 2019–20
to $31 billion in 2020–21. The decline in export earnings is expected to be
driven primarily by weak contract and spot prices and, to a lesser extent,
lower export volumes.

The impact
of the slide in oil prices is expected to be concentrated in the second half of
2020, due to the several-month lag of the flow-on effects for oil-linked contract
prices – at which almost three-quarters of Australian LNG is sold.

Export
earnings are forecast to partially recover to $37 billion in 2021–22, tracking
an expected rise in contract and spot prices.

The forecast
for Australian LNG export earnings in 2020–21 has been revised down by $3.7
billion from the June 2020 Resources and Energy Quarterly. The downward
revision primarily reflects lower export volumes and exchange rate revisions.