Australia: LNG exports to rise 40 percent in 2016-17

Australia’s LNG export volumes are expected to increase by 40 percent year on year to 51 million tonnes in fiscal 2016–17, according to the country’s Department of Industry, Innovation and Science.

An additional 15 million tonnes of LNG export capacity is expected to be completed by mid- 2017, bringing total operational capacity to around 66 million tonnes, the department said in its latest report named Resources and Energy Quarterly.

This includes the second and third trains at Chevron’s giant Gorgon project in Western Australia, and the second train at the ConocoPhillips-operated Australia Pacific LNG project in Queensland.

The value of Australia’s LNG exports is forecast to increase by 41 percent to $23 billion in fiscal 2016–17, supported by higher LNG prices and export volumes, the department said in the report.

Increased exports to Japan, South Korea and China are expected to drive the rise in Australia’s LNG export volumes.

“While prospects for total import growth in Japan and South Korea are subdued, Australian producers are expected to capture an increasing share of both country’s imports with the commencement of a number of long-term contracts over the outlook period.”

LNG export forecast revised down

The department said in the report that the forecast for LNG export volumes in fiscal 2016–17 has been revised down by 2 million tonnes from the June edition.

The revised forecast reflects a conservative view of the ramp up of LNG exports at several projects in Australia.

“Statements from Santos executives in August indicate that GLNG may operate both trains below capacity for some time, with company releases noting that the low price environment is restricting capital expenditure and that the cost of third party gas has risen,” the report said.

Prices rise

After declining over the first five months of 2016, prices for Australian LNG delivered to markets in North East Asia rose in June, the department said.

The average price of LNG into Japan, Australia’s largest market and the world’s largest importer, increased by 18 percent to US$6.51 a gigajoule, it said.

“The recent uptick in prices reflects the effect of the oil price rally in early 2016, with most LNG delivered into Asia sold under contracts linked to the Japanese Customs-cleared Crude (JCC) oil price, by a time lag of three to four months.”

The North East Asian spot price has increased over the past few months, averaging $5.80 a gigajoule in August, but remains around historic lows, as a result of growing excess capacity in the market.

“Prices for LNG delivered to North East Asia are expected to rise in the September quarter before flattening out towards the end of the year, as the lagged response of LNG contract prices to recent oil price movements plays out.”

LNG contract prices are then expected to rise further in 2017, consistent with the forecast recovery of oil prices to $55 a barrel. In contrast, spot prices are forecast to remain low, as the entry of new capacity in the US and Australia ensures that the market remains well supplied, the department said.

“The implications of a potential divergence between contract and spot LNG prices remain to be seen, with one scenario that buyers begin to reduce LNG purchases to take-or-pay levels and seek to buy larger volumes on the spot market.”

LNG World News Staff