Wood Mackenzie Warns Australia Faces Hiatus in New LNG Projects

At APPEA 2013, Wood Mackenzie’s Head of Australia Upstream Consulting, Mr. Andrew McManus warned Australia faces a hiatus in new liquefied natural gas (LNG) projects as the focus of LNG buyers has turned to the United States (US).

The US offers customers potentially lower-cost, more flexible LNG and the opportunity to diversify supply portfolios.

Mr. McManus said, “There are five key issues driving buyer motivations in the current market:- supply portfolio diversification, exposure to Henry Hub pricing, greater flexibility in contract terms, projects that can be sanctioned quickly and access to upstream equity. For these reasons, US supply has become the most favourable near-term option, that is for deals where supply is expected to start pre 2020.”

But continued growth in LNG demand offers room for other supply regions, including East Africa, Canada and Russia in addition to Australia. Opportunities for new Australian projects will be limited, and the high-cost environment will need to be controlled for these projects to be competitive with emerging supply regions.  However, a strong focus on greater supply diversity means that any new Australian capacity is likely to be smaller in scale than the large greenfield developments that we have seen in recent years, and limited to the expansion of existing facilities or floating liquefied natural gas (FLNG).

Mr. McManus says, “Australia has had a remarkable few years of LNG build. It has gone from contributing seven-percent of global LNG supply in 2000 to an expected 25% of the global market by 2018. Buyers have increased their exposure to Australia during the period, as Australia has been the only material supply option available. It is inevitable that markets like China and Japan, which are major Australian LNG off-takers, may now seek to diversify their supply options.”

Looking forward, there are opportunities for new Australian supply into the market but projects approaching final investment decision (FID) will need to be aware of what buyers want and be ready to respond when other regions may falter.

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LNG World News Staff, May 27, 2013