LNG crash a slow-moving train wreck: expert
ALL the boom and building on Curtis Island in the past five years could be for little gain, as an energy analyst has likened Australia’s $200million liquefied natural gas industry to a “slow-moving train wreck”.
The price of LNG has fallen 75% from the boom days, gas producers now receiving returns close to the cost of production.
When the first Curtis Island cargo left on January 8 last year the spot price was $9Lper million metric British thermal units (LMMBtu), down from $14LMMBtu three months earlier, according to Platts Market Centre.
On Thursday the price was about $5.50LMMBtu.
Wood Mackenzie senior analyst Saul Kavonic said Gladstone’s LNG plants were at risk of reducing production on a cash-cost basis.
He said the ongoing cash costs for conventional LNG projects were below US$2MMBtu but the Curtis Island plants faced higher costs as they developed more coal-seam-gas wells.
“The construction of the LNG trains on the east coast were delivered relatively well but the problem for the east coast is getting the gas,” Mr Kavonic said.
“They require ongoing drilling of the coal-seam-gas wells and ongoing capital commitments to meet the production needs.
“With the cost of getting the gas on the ground some of them may consider running those plants at a reduced capacity if LNG prices remain depressed.”
He said the plants were 20 to 30-year investments and he expected them to ride out the cyclical downturn.
“We expect it will remain relatively depressed tothe end of the decade due to the glut in supply following the rise of the Australian and US LNG projects,” he said.
He forecast the companies to start making greater revenues mid next decade when the price of LNG increased again.
Most producers have long-term contracts but those contracts are pegged to the price of oil, which has also dropped, dragging down the value of their contracts.
The profitability of the plants has also raised questions about their viability.
HoustonKemp partner Greg Houston told ABC’s 7.30 Report “the crash is a slow-moving train wreck, if you like”.
He said the companies could not drill enough gas quickly enough or cheaply enough.
“That’s a huge financial hit to the people who have made this investment,’ he said.
Origin Energy chief executive officer Grant King said he was confident the second train at QCLNG would be finished by the end of the year as he admitted the LNG industry was under pressure.
He told the 7.30 Report that despite the current pressure it was still a “robust” business and it would return a profit in the 20 to 30-year outlook.