Australia’s LNG Exports Value to Surge

Australia’s chief economist expects the value of the country’s LNG exports to surge from A$22bn ($17.26bn) in fiscal 2016-2017 (July-June) to A$36bn in 2018-2019 following a strong growth in volumes.

“Rising export values will be propelled by higher export volumes and, to a lesser extent, higher prices,” the chief economist Mark Cully said in his resources and energy quarterly January 8.

Australia’s LNG export volumes are forecast to equal those of Qatar at 77mn metric tons in 2018-2019, up from 52mn metric tons in 2016-2017, his report said.

“Higher export volumes will be driven by increased production at Gorgon, as well as the completion of the three remaining LNG projects under construction – Wheatstone, Ichthys and Prelude. These three projects will add around 21mn mt/yr to Australia’s LNG export capacity, bringing total nameplate capacity to around 88mn mt/yr,” it said.

Chevron’s Wheatstone project in Western Australia is likely to be the first of the three projects completed, with train 2 due online in the June quarter, the report said.

First LNG project at Inpex’s Northern Territory-based Ichthys project is expected in the current quarter of this year, “with some reports indicating that train 2 could commence operations as soon as a few months later,” it added.

“Shell’s Prelude Floating LNG project is likely to be the last of Australia’s recent wave of seven LNG projects to be completed, with Shell indicating Prelude will be completed between May and August 2018,” it said. The report cautioned that some uncertainty surrounds the outlook for export volumes, with competition in global LNG markets set to intensify.

“The cost competitiveness of Australian LNG projects and the amount of flexibility in Australian LNG contracts are two important factors,” it said. “LNG contracts often include clauses which allow buyers to reduce purchases to minimum ‘take-or-pay’ levels. It is possible buyers may utilise these ‘take-or-pay’ provisions in their oil-linked contracts if oil prices are higher than spot prices, or if they become over-contracted for LNG,” it said.

Meanwhile, LNG contract prices – under which most Australian LNG is sold – are forecast to increase in line with oil prices. The price of Australian LNG FOB is forecast to increase to average A$9/gigajoule [$7.5mn/Btu] in 2018-2019, it said.

“The recent increase in oil prices should begin to flow through to Australian LNG prices around early 2018. The JCC [Japanese customs cleared] oil price is forecast to average US$56/barrel in 2018-19, up from an average of $50 a barrel in 2016-17,” it said.

“The recent increase in Asian LNG spot prices should also support average Australian LNG prices in the short-term, as exporters look to capitalise on the price spike,” it added.