CANBERRA: Six liquefied natural gas projects under construction at a cost of $200 billion will struggle to break even because of the oil price slump, the International Energy Agency said, and there is little prospect of three in the planning stage going ahead.
The agency said even if oil prices recovered and averaged $US60 a barrel for the next few years, Australia’s LNG industry – one of the world’s biggest – will struggle to be profitable.
“In a $US60 oil environment the Australian projects will continue, but you are probably not breaking even,” the IEA’s senior gas expert, Costanza Jacazio, said in an interview from Paris. “Will anything else in Australia proceed beyond this next portion of projects? I think in this environment it is very unlikely.”
The warning by the agency, the OECD’s adviser on energy, highlights the danger to foreign companies of investing in Australia’s high-cost economy.
Singapore-based energy forecaster Fereidun Fesharaki said the economics of the planned LNG projects in Australia are a “tragedy” due in part to over-optimistic expectations that Asian buyers would continue to pay historically high prices.
“I am looking at oil to average a maximum of $US75 a barrel over the next decade, and even then they just won’t get a rate of return to justify the investment,” said Dr Fesharaki, a former energy adviser to the prime minister of Iran who has close links with Asian LNG buyers.
While most Australian LNG supplied into Asia is locked into long-term contracts, the deals are directly indexed against crude oil prices, meaning a change in oil prices hits LNG prices three to six months later. Brent crude oil prices, a benchmark for Asian LNG prices, have fallen to US$50 a barrel from $US105 a barrel a year ago.
While the prices underpinning LNG contracts are not disclosed by the gas producers, the current LNG spot price for north-east Asia is $US7.50 ($10.85) per million British thermal units, down from $US20 in last February.
“We will see major projects brought to market over the next twelve months,” said Malcolm Roberts, chief executive of the gas industry’s trade group, APPEA. “These projects will generate much-needed cash and put Australia in a strong position to take advantage of the forecast recovery in global demand for LNG.”
The projects not expected to proceed include Woodside Petroleum’s Browse floating project and its Sunrise venture in the Timor Sea and ExxonMobil and BHP Billiton’s Scarborough project off Western Australia. The IEA also doubts any existing LNG projects in Australia will receive the green light to expand this decade.
