Australian LNG export value to rise, earnings revised

Australian LNG export value to rise, earnings revised
Wheatstone LNG jetty (Image courtesy of Chevron)

The value of Australia’s LNG exports is forecast to increase from an estimated A$23 billion (US$17.5 billion) in 2016–17 to A$37 billion ($28.1 billion) in 2018–19, according to a report by the government’s Department of Industry, Innovation and Science. 

Growth in export earnings will be supported by higher export volumes and, to a lesser extent, higher prices, the report says. LNG is forecast to overtake metallurgical coal as Australia’s second largest resource and energy export in 2018–19.

Australia’s LNG export volumes are forecast to reach 74 million tons in 2018–19, up from an estimated 51 million tons in 2016–17.

Higher export volumes will be underpinned by the ramp-up of 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 21 million tons to Australia’s LNG export capacity, bringing total nameplate capacity to around 88 million tons.

The average price of Australian LNG is forecast to increase by 12 percent in 2017–18, before stabilizing in 2018–19. Estimated export earnings in 2016–17 are A$1 billion lower than forecast in the March Resources and Energy Quarterly because of lower than expected exports over the first half of 2017.

Production at Woodside’s North West Shelf and Pluto projects were affected by adverse weather conditions in the March quarter. Operations were also suspended at the North West Shelf between 15 and 28 April, following an electrical fault. Train 1 at the Gorgon project was stopped in the second half of May, due to the failure of a flow measurement device.

Downward revisions to export earnings in 2017–18 (totalling A$4.0 billion) and 2018–19 (totalling A$1.6 billion) reflect a more subdued outlook for both oil prices (to which LNG prices are directly linked) and export volumes.

LNG production at Inpex’s Icthys project, which was originally scheduled to begin in late 2017, has been delayed until March 2018. More minor revisions have been made to the forecasts for a number of other LNG projects.

The report also notes that a number of uncertainties remain as oil prices are a key sensitivity to the outlook for LNG export earnings. If the JCC oil price forecast was reduced by US$5 a barrel, projected LNG export earnings would be A$2.7 billion lower in 2018–19 at A$34.3 billion.

Some uncertainty also surrounds the outlook for export volumes. Competition in global LNG markets is set to intensify over the next few years, and the average capacity utilisation of Australian LNG plants is expected to edge down.

The extent of the decline will depend on the cost competitiveness of Australian LNG projects and the amount of flexibility in Australian LNG contracts.

The Australian Domestic Gas Security Mechanism (ADGSM) also has the potential to affect future LNG exports. It will allow the Australian government to restrict LNG exports if a gas supply shortfall is projected in the domestic market. LNG exporters that are net contributors to the domestic market will not be affected, but those that are not net contributions may have their exports capped.

1 AUD = 0.759773 USD

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