Global buyers of liquefied natural gas (LNG) will increasingly turn to the United States, casting a shadow over Australia’s LNG industry, at least temporarily, said Wood Mackenzie’s Andrew McManus, head of the firm’s upstream consulting business in Australia.
The United States offers customers potentially lower-cost, more flexible LNG and the opportunity to diversify supply portfolios, he said at an industry conference in Brisbane Monday.
“There are five key issues driving buyer motivations in the current market: supply portfolio diversification, exposure to Henry Hub pricing, greater flexibility in contract terms, projects that can be sanctioned quickly and access to upstream equity. For these reasons, U.S. supply has become the most favorable near-term option, that is for deals where supply is expected to start pre-2020.”
However, demand for LNG will continue to grow, and that will create opportunities for other supply regions, such as East Africa, Canada and Russia, in addition to Australia, McManus said. Opportunities for new Australian projects are expected to be limited, and the country’s high-cost environment will need to be controlled for those projects to be competitive with emerging supply regions. However, a strong focus on greater supply diversity means that any new Australian capacity is likely to be smaller in scale than the large greenfield developments seen in recent years, and limited to the expansion of existing facilities or floating liquefied natural gas, McManus said.
Also at the conference, Chevron Australia Managing Director Roy Krzywosinski said his company is in talks with third-party gas suppliers for the possible expansion of its Wheatstone LNG facility, as reported by Reuters. The Wheatstone plant is about 10% complete, while the company’s Gorgon LNG facility is 60% complete with plans under way for an expansion, the news service said.
“Australia has had a remarkable few years of LNG build. It has gone from contributing 7% of global LNG supply in 2000 to an expected 25% of the global market by 2018,” McManus said. “Buyers have increased their exposure to Australia during the period as Australia has been the only material supply option available. It is inevitable that markets like China and Japan, which are major Australian LNG off-takers, may now seek to diversify their supply options.”
There are opportunities for new Australian supply to enter the market, but backers of projects approaching final investment decision will need to be aware of what buyers want and be ready to respond when other regions may falter, McManus said.
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