Oz LNG Export Earnings to Fall Sharply

Australia’s LNG export earnings are forecast to drop sharply by 26% yr/yr to A$35bn (US$24bn) in 2020–21 (July-June), owing to weak contract and Asian LNG spot prices, as well as an expected rise in the Australian-US dollar exchange rate, according to the department of industry, science, energy and resources.

As per the department’s June 2020 Resources and Energy Quarterly report, the impact of the slide in oil prices is expected to be concentrated in the second half of 2020, as today's oil prices only affect term LNG prices after three or more months, when referenced in long-term contracts, and most Australian LNG is sold on oil indexation.

“Oil prices are a key sensitivity for Australian LNG export earnings, and there is substantial uncertainty underpinning the outlook for oil prices,” the report said. Based on scenario analysis using different oil price forecasts, LNG export earnings could fall anywhere between A$29 and A$37bn in 2020–21, and A$30 and A$42bn in 2021–22. 

Export earnings are, however, forecast to edge up to A$36bn in 2021–22, tracking a forecast rise in contract and spot prices. The forecast for Australian LNG export earnings has been revised down from the March 2020 Resources and Energy Quarterly: by A$10bn in 2020–21 and A$12bn in 2021–22, the department said.

“The substantial downward revision reflects exchange rate revisions, lower oil price forecasts and lower Asian LNG spot prices. LNG spot prices have fallen to unprecedented lows in the first half of 2020, due to weak demand as a result of the Covid-19 pandemic. The unexpected shut down of Prelude has also contributed to the downward revision in export earnings,” the report said.

Australia’s LNG exports reached an estimated 79mn metric tons in 2019–20, and are forecast to edge up to 80mn mt by 2021–22, the report said.