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and
A
s the LNG industry prepares to assemble at LNG 18 in
Perth, Australia, it is the US LNGmarket that is stealing
the headlines.
In late February 2016, Cheniere Energy finally announced
that the first shipment of LNG had set sail from its Sabine Pass
liquefaction terminal in Louisiana. This shipment marks the arrival
of a major new player in the LNG industry; a player that would
have once been unimaginable to LNG project proponents in
Australia.
Four new projects are due to start production down under
by the end of 2017, adding approximately 37 million tpy of LNG
to the global market. At the time of writing, first production
fromChevron’s Gorgon LNG project was said to be imminent.
The timing for this project – the world’s most expensive
(US$54 billion) – is somewhat unfortunate. In addition to the
arrival of US shale gas to an already oversupplied market, LNG
prices have fallen sharply and demand is weakening.
Evidence of the rough road ahead for Australian projects
could be seen in Santos’ full year results for 2015. The operator of
the Gladstone LNG (GLNG) project, which shipped its first cargo
in October 2015, reported a staggering loss of AUS$2.7 billion
for the 12 months to December 2015. Santos said that the
loss reflected lower oil prices during the period. Its rival,
Woodside Petroleum, also attributed its 99%drop in net profit
after tax for 2015 to the global fall in oil prices.
While operators of these new projects would have certainly
foreseen more favourable market conditions upon launch – and
would have hoped to keep escalating costs under control
during the construction phase – it is important to remember
that Australia is playing the long game. The projects have been
developed with an average life span of 40 years, and have long
offtake agreements in place based on oil-indexed pricing, which
will eventually start to climb (the International Energy Agency
expects to see a gradual rise in the price of oil to US$80/bbl by
2020).
1
What’s more, the demand outlook for natural gas remains
very promising. In its
2016 Energy Outlook
, BP notes that gas is
the fastest growing fossil fuel.
2
BP expects LNG’s share of world
demand to rise from 10% in 2014 to 15% in 2035, by which time
LNGwill surpass pipeline imports as the dominant form of traded
gas. BP also said that it does not expect the recent weakness in
gas consumption to persist, as strong supply growth and stronger
environmental policies will allow gas to compete with coal in
Europe, Asia and North America.
In this issue of
LNG Industry
, Geoffrey Cann, Deloitte
Australia’s National Director, Oil and Gas, takes a look at some
of the critical challenges facing Australia as it readies itself to
become the world’s largest LNG exporter (starting on p. 12). As
well as outlining the immediate agenda for the country’s LNG
industry over the next 24months, Cann takes a look at the future
direction of the Australian LNG sector. He believes that shortly
after the current wave of projects have been completed, attention
should turn to the many innovative technologies that have yet
to establish a significant presence within the industry. It is these
technologies that hold the key to keeping costs down and
productivity up in a market that is more competitive than ever.
An array of innovative technologies will take centre stage
at the LNG 18 Conference and Exhibition in April. As always, the
LNG Industry
teamwill be in attendance at the show and we
invite you to drop by stand 1065 to discuss your latest products
and projects with us.
1.
World Energy Outlook 2015
, International Energy
Agency, (2015).
2.
Energy Outlook 2016
, BP p.l.c., (2016),
bp.com/content/dam/bp/pdf/energy-economics/energy-
outlook-2016/bp-energy-outlook-2016.pdf
