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Australia lifts its LNG export forecast, but questions whether it will surpass Qatar

Asia and Middle East LNG Market Update

April 12, 2017 - By Nathan Richardson

The Australian government lifted its forecast of LNG exports for the next couple of years, while also noting an expected fall in capacity utilization of the country’s export projects and cast some doubt over whether it will surpass Qatar as the world’s largest exporter.

Australia’s LNG exports are expected to total 53.1 million mt (6.7 Bcf/d of gas) in fiscal 2016-2017 (July-June) and 67.6 million mt in fiscal 2017-2018, up from its previous forecast of 52.4 million mt and 67.3 million mt, respectively, the government said in its Resources and Energy Quarterly released late April 7.

It also gave projections for the following four fiscal years, which were 76.1 million mt, 77 million mt, 77.9 million mt, and 77 million mt, respectively, for 2018-2019 to 2021-2022.

The rapid rise in exports will be underpinned by the recent completion of trains at Australia Pacific LNG and Gorgon, as well as the completion of the three remaining LNG projects under construction — Wheatstone, Ichthys and Prelude, which will add around 21 million mt/year of export capacity, it said.

But while LNG exports are projected to rise, the capacity utilization of the LNG projects is expected to fall.

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“The extent to which capacity utilization declines will depend, in part, on the nature of the contractual arrangements that Australian exporters have in place with buyers,” it said.

LNG contracts often include clauses which allow buyers to reduce purchases to minimum take-or-pay levels. The flexibility with which buyers can do this is likely to be important if oil-linked contract prices and spot prices diverge.

Take-or-pay levels are thought to be around 85% of contracted volumes, but can vary between contracts, it said.

Price competitiveness an issue for Australian producers

Proximity to Asia will continue to be an advantage for Australian producers, but the Panama Canal expansion in 2016 has lowered shipping costs from the US, and Qatar will remain the lowest cost producer in the world, the report said.

This, and the fact that three Australian LNG export terminals at Gladstone are largely fed by higher cost coalseam gas, will be factors affecting the outlook for exports.

Based on current projections, Australia will overtake Qatar as the world’s largest LNG exporter in 2019, the report said. But, given the narrow difference between the projected exports of the two countries, and the downside risk for Australia, at this time it “is not a certainty,” it added.

The report placed Qatar’s 2015 LNG exports at 73 million mt, adding that in recent years they have hit 77 million mt and are projected to be around 74 million mt/year over the outlook period.

The government projects Australian LNG prices to rise over the medium term.

“The price of Brent crude — which the JCC price follows closely with about a one month lag — is expected to average $64/b in 2022 (in 2017 dollar terms), up from around $45/b in 2016,” it said.

“The average price of China’s LNG imports from Australia is expected to increasingly follow movements in the JCC price, as trade based on oil-linked contracts swamps the level of trade based on older, fixed priced contracts,” it added.

The unit value for Australia’s LNG exports in 2016-2017 is forecast to be unchanged from $6.60/MMBtu in 2015-2016 before rising to $7.90/MMBtu in 2017-2018.

Australian exports to Japan, S. Korea, China on the rise

The forecast increase in Australian LNG exports from 2016-2017 to 2017-2018 is expected to be driven by larger volumes being sent to Japan, South Korea and China.

“While prospects for growth in the imports of Japan and South Korea are limited, Australian producers are expected to capture an increasing share of both countries’ imports as long-term contracts start up,” it said.

“In China, LNG will increasingly compete with pipeline gas, while nuclear restarts in Japan and competition from other fuels in South Korea will weigh on LNG imports,” it said.

Total imports into Japan are projected to fall by 2.5% annually to 72 million mt in 2022, as overall energy demand is subdued by a declining population, improving energy efficiency and sluggish economic growth outlook, it said.

South Korea’s LNG imports are projected to increase by 1.6% annually to 36 million mt in 2022, constrained by its plans to expand nuclear and coal-fired power generation, it said.

China’s LNG imports are forecast to rise by 19% annually to 48 million mt by 2020, before declining to 41 million mt in 2022, it said.

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