Australian LNG Exports' Value Declines

An Australian government report Resources and Energy Quarterly published December 19 warns that the value of the country's LNG exports will decline from A$50 ($34)bn in 2018–19 to A$49bn in 2019–20, and fall back further to A$47bn in 2020–21, driven by declining oil-linked contract prices and an appreciating exchange rate.

This is despite output rising from 75mn metric tons in 2018–19 to 81mn mt in 2019–20, as the last two projects in Australia’s recent wave of LNG investment, Prelude and Ichthys, ramp up. The new forecasts have been revised down from the September 2019 Resources and Energy Quarterly, by A$2.7bn and A$2.2bn in 2019–20 and 2020–21, respectively. 

Spot LNG prices are even lower, and this is another cause for concern for producers: "Although the differential between spot and long-term contract prices has narrowed in recent months, it is still very large in historical terms. There are potential implications for long-term contracts if this gap persists for a sustained period of time," says the report.

In 2019–20, growth in export volumes is expected to partially offset the impact of lower oil-linked contract prices, as the Prelude and Ichthys projects continue to ramp up production. Production at Ichthys has ramped up ahead of schedule, reaching around 95% of nameplate capacity during the September 2019 quarter, up from around 80% in the June quarter.

Partially offsetting export growth from new projects, maintenance works at Train 1 at Gorgon LNG is expected to reduce export volumes in the December 2019 quarter.  Tapering production at Darwin LNG – as gas from the Bayu-Undan field is exhausted – is expected to see a reduction in export volumes towards the end of the outlook period.

The report also comments on the effect of the US-China trade talks, following the mid-December agreement: "LNG trade flows will likely continue to be influenced by any resolution or escalation of US-China trade tensions. The Phase One trade deal... includes commitments from China to import an additional $200bn of US goods and services over the next two years, although it remains unclear if LNG will be a part of the deal. If LNG continues to be caught up in trade tensions, this may discourage or delay final investment decisions for a second wave of US LNG projects."

On current estimates, Australia is expected to marginally edge past Qatar as the world’s largest LNG exporter in 2019, shipping an estimated 78mn mt of LNG compared with an estimated 75mn mt from Qatar. The title is not certain however, with a lack of clarity around the precise level of Qatar’s LNG exports, the report says.

The CEO of upstream lobby group Australian Petroleum Production & Exploration Association Andrew McConville said the data highlighted the significance of LNG exports for sustaining Australia’s economic growth, maintaining living standards and lowering global carbon emissions. “Australia’s LNG projects will deliver decades of economic growth, jobs and exports,” he said.  “The billions of dollars invested in these projects has also benefitted the growing domestic market. The LNG industry is and will remain a very large supplier of domestic gas to the east coast gas market."