Thursday 28 Mar 2024
By
main news image

SYDNEY (Nov 28): Tumbling crude oil prices are casting a shadow over almost US$70 billion of natural gas projects planned in Australia, threatening what’s billed as the second leg of the nation’s energy boom.

While Australia remains on track to surpass Qatar this decade as the world’s biggest exporter of liquefied natural gas, the oil price decline is bad timing for the next wave of projects in an industry shaken already by China's move to ink gas-supply agreements with Russia, high costs and a shale gas revolution in the US that’s set to hit global markets.

“The oil price environment does have the potential to delay and defer projects because of the uncertainty that the volatility brings,” John Hirjee, an analyst at Deutsche Bank, said today by phone from Melbourne.

OPEC yesterday took no action to ease a global oil-supply glut, resisting calls from Venezuela that the group needs to stem the rout in prices.

Woodside Petroleum is at risk of missing its target of approving the Browse LNG project in the second half of next year, Hirjee said.

Its partners in Browse include Royal Dutch Shell, BP and PetroChina. The project is estimated by the bank to cost about US$35 billion.

Woodside today referred to comments made earlier this month by Chief Executive Officer Peter Coleman, who said in a speech that a prolonged oil price slump will hurt returns at existing LNG projects and threaten future developments.

Asian market
Australia’s first phase of LNG development has resulted in seven LNG projects now under construction at a cost of about US$180 billion to supply the Asian market.

Most Australian LNG is sold at prices linked to oil, which has slumped as the US pumped the most in more than three decades and conflict in the Middle East and Ukraine failed to disrupt supply.

Brent crude, a benchmark for more than half of the world’s oil, fell by the most in more than three years after the OPEC decision, slumping 6.7 percent to US$72.58 a barrel yesterday.

Prices peaked this year at US$115.71 in June.

The prices have fallen below a key level for the Australian LNG industry.

Most Australian projects need an oil price at US$75 to US$90 a barrel to generate a 10 percent rate of return, including money they’ve already spent, Nik Burns, an analyst at UBS in Melbourne, said by phone.

“At spot prices it wouldn’t be economic to proceed,” said Burns.

LNG projects, though, have lives that span decades so developers will focus on longer-term oil forecasts when considering investment decisions - and the market expects a recovery in prices in the “medium term”, Burns said.

'Considerably worse'
The LNG projects once they’re up and running will generate “very significant cash flows for 20 to 30 years,” said Robert Morris, an LNG analyst at Wood Mackenzie in Singapore.

When Chevron Corp’s Gorgon LNG project was approved in 2009, the oil price was less than US$70, he said.

At oil prices this month, the investment returns on Browse “look considerably worse, and hence sanctioning Browse would sit at odds with Coleman’s growing reputation for capital discipline,” Macquarie Group said in a Nov 19 report.

The Scarborough and Sunrise LNG projects have also been proposed in Australia, and are estimated to cost a combined US$33 billion, according to a Deutsche Bank report this month.

      Print
      Text Size
      Share