Australia raises LNG export forecast

The Australian government has raised its forecast for LNG exports for fiscal 2016-2017 to 53.1 million mt, according to the latest quarterly report by the Department of Industry, Innovation and Science.

In its previous report named Resources and Energy Quarterly, the department said that Australia’s LNG export volumes are expected to increase to 52.4 million mt in the fiscal year spanning from July to June.

Australia’s LNG export volumes are expected to grow further in 2017–18 to 67.6 million mt and 77 million mt in 2021–22, the report notes.

Higher export volumes will be underpinned by the recent completion of trains at APLNG and Gorgon, as well as the completion of the three remaining LNG projects under construction — Wheastone, Ichthys and Prelude, the department said.

The three projects, that are expected to start operations by mid-2018, will add around 21 million mt to Australia’s LNG export capacity, bringing total capacity to around 87 million mt.

“However, some uncertainty surrounds the timing of Shell’s Prelude project in the Browse Basin, where start up could be complicated by the cyclone season, which runs from November to April,” the report said.

Increased LNG exports to Japan, South Korea and China are expected to drive the rise in Australia’s export volumes in 2016–17 and 2017–18.

“While prospects for growth in the imports of Japan and South Korea are limited, Australian producers are expected to capture an increasing share of both country’s imports as long-term contracts start up,” the report said.

Capacity utilization to decline

While LNG exports are projected to rise, the capacity utilisation of Australian LNG export projects is expected to decline.

The extent to which capacity utilisation declines will depend, in part, on the nature of the contractual arrangements that Australian exporters have in place with buyers, the report said.

LNG contracts often include clauses which allow buyers to reduce purchases to minimum ‘take-or-pay’ levels.

“The flexibility with which buyers can reduce purchases on Australian contracts is likely to be important if oil-linked contract prices and spot prices diverge, encouraging buyers to reduce imports on contracts to minimum levels and to boost purchases on the spot market,” the report said.

According to the report, the flexibility in Australian contracts is also likely to be important at times when buyers are over contracted and need to reduce LNG purchases. Take-or-pay levels are
thought to be around 85 percent of contracted volumes, but can vary from contract to contract.

In addition, the price competitiveness of Australian producers is another factor affecting the outlook for exports, the report said.

“Proximity to Asia will be an advantage, although the Panama Canal expansion in 2016 has lowered shipping costs from the US, and Qatar will remain the lowest cost producer in the world.”

A large cost for LNG plants is feed gas. The three LNG export terminals on the east coast — which are largely fed by CSG from Queensland’s Surat and Bowen basins — tend to have relatively high costs for feed gas, the report said.

Unlike LNG ventures using gas from conventional reservoirs, LNG operators on the east coast will need to drill hundreds of new wells each year to maintain CSG production, with costs of over a million dollars per well, it said.

On current projections, Australia will overtake Qatar as the world’s largest LNG exporter in 2019, when Australian LNG exports reach 76 million mt, according to the report.

“However, given the narrow difference between the projected exports of the two countries and the downside risks to the outlook for Australian LNG, Australia overtaking Qatar at this time is not a certainty,” it added.

LNG World News Staff