CANBERRA: Australia’s LNG export volume is expected to surge 40% year on year to 51.5 million mt in fiscal 2016-17 (July-June) as additional export capacity comes online, but the forecast has been revised down 2 million mt from June, Australia’s Department of Industry, Innovation and Science said Friday. “An additional 15 million mt of LNG export capacity is expected to be completed by mid-2017, bringing total operational capacity to around 66 million mt,” the department said in its latest Resources and Energy Quarterly. The additional capacity includes second and third trains at the Gorgon project in Western Australia and a second train at the Australia Pacific LNG project in Queensland. The forecast is 2 million mt lower than the 53.5 million mt the department gave in its June report, and reflects a more conservative view of the ramp up of LNG exports from several projects in the country.
“Statements from Santos executives in August indicate that GLNG may operate both trains below capacity for some time, with company releases noting that the low price environment is restricting capital expenditure and that the cost of third party gas has risen,” the department said.
An increase in exports to Japan, South Korea and China was expected to drive the rise in Australia’s export volumes. “While prospects for total import growth in Japan and South Korea are subdued, Australian producers are expected to capture an increasing share of both country’s imports with the commencement of a number of long-term contracts over the outlook period,” the department said in the report. The unit value for Australia’s LNG exports in fiscal 2016-17 is forecast to be in line with fiscal 2015-16 at $6.70/MMbtu, and down from $11.30/MMbtu the year before, it said. “Spot prices are forecast to remain low, as the entry of new capacity in the US and Australia ensures that the market remains well supplied,” it said. POTENTIAL DIVERGENCE
The report noted a potential divergence between contract and spot LNG prices, saying one scenario was that buyers would begin to reduce LNG purchases to take-or-pay levels and seek larger volumes in the spot market. LNG contract prices, under which most Australian LNG is sold, are expected to increase as oil prices recover, it said. Another issue that could affect spot markets is the future of destination clauses in contracts, which currently prevent buyers from re-directing LNG to other ports, it said.
“A move to loosen destination restrictions in contracts would make it easier for over-contracted buyers to enter the spot market as sellers, adding to downward pressure on spot prices,” the department said in the report. After several years of flat to lower trade, the global LNG market is expected to increase by 7% in 2016 and 10% in 2017 to 285 million mt on the back of emerging demand growth in Asia and Europe and supported by a major expansion of LNG exports from Australia and the US.
