LNG exports to take $20b hit as prices nosedive

LNG exports to take $20b hit as prices nosedive

Australia’s LNG export earnings look set to take a $20 billion hammering next financial year as the impact of COVID-19 and a supply glut slash prices to levels much lower than assumed by the federal government’s commodities forecaster.

Respected consultancy EnergyQuest estimates the country’s LNG export revenues could drop as low as $30 billion next year from a near record of about $50 billion expected for 2019-20.

That compares with the estimate of $44 billion for LNG export revenues in 2020-21 in the Office of the Chief Economist’s latest quarterly report last month, which was completed before the slump in oil prices and when COVID-19 was largely confined to China.

Australian LNG exports to China bounced back in March. Getty

The gap signals the Department of Industry’s forecast that the country’s commodity exports would slide only about 9.4 per cent to $271 billion next year from a record $299 billion expected for 2019-20 may prove over-optimistic.

The recent deferral of major projects to develop new offshore gas fields in Australia because of the price slump also looms as a threat to longer-term LNG export earnings because of the need for new supplies to keep existing plants running at capacity, Adelaide-based EnergyQuest said.

Between them, Woodside Petroleum and Santos have in the last few weeks put on hold about $60 billion of LNG development investment planned at fields including Scarborough and Browse off Western Australia and at Barossa off the north coast as they axe spending in the face of the collapse in prices. The new fields are required to supply replacement gas for the North West Shelf, Pluto and Darwin LNG plants.

“The long-term problem is not being able to afford the gas field development necessary to keep LNG plants full,” EnergyQuest principal Graeme Bethune said in the report released on Thursday.

“The Australian project deferrals have national economic implications.”

EnergyQuest noted that so far, Australia’s LNG export prices have been holding up, with the drop in crude oil prices not expected to feed through to LNG prices until May or June. So the collapse in oil prices would only have their full impact on export revenues next financial year.

It said that at current oil prices of about $US30 a barrel, Australia’s LNG exporters “will not thrive but they will survive”, noting Santos has set a target of $US25 a barrel to break even this year.

However the deferral of investment will make it harder to capitalise on the $273 billion spent by the oil and gas sector on LNG development projects between 2009 and 2015, with no investment expected until oil prices improve.

LNG export volumes have been better than expected, totalling 80.5 million tonnes a year on an annualised basis in March, maintaining Australia as the world’s largest exporter.

Some 108 cargoes of Australian LNG were delivered in March, up 27 per cent from the previous month. LNG trade to China and Japan appears to be returning to normal levels after a slowdown in shipments from Gladstone, which supplies Chinese customers CNOOC and Sinopec, the firm said.

But it also pointed to signs of customers possibly reducing cargoes from Australia, including PetroChina and India’s Petronet, which is reported to have issued a “force majeure” notice for LNG from the Chevron-run Gorgon project in WA as demand for gas in India drops due to the lockdown for COVID-19.

https://www.afr.com/companies/energy/lng-exports-to-take-20b-hit-as-prices-to-nosedive-20200416-p54kcn

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