The Australia Liquefied Natural Gas industry underwent massive capital investment worth up to $80 billion which are all coming online between 2015 and 2017, making Australia an export powerhouse.
LNG Train
Exhibit below shows the steps from natural gas production, liquefaction step and re-gasification.
LNG Pricing
Prices of LNG sold from Australia are under long term contract linked to a crude oil benchmark. While the exact terms of the contract are confidential, a key benchmark is a basket of crude oil landed in Japan or Japan Crude Cocktail.
Due to the large amount of capital required to fund the LNG investment. The liquefied gas production are sold on a long term contract basis. Each project are built once key customers representing more than 75% of the production has committed to buy the production.
Customers also own a token share of the project to ensure incentives are aligned.
The fall in crude oil prices from $100 us dollar per barrel could have not come at a worse time for the industry. The market will struggle to absorb the large increase short term supply. China, once predicted to increase imports significantly has taken a back seat. This coupled with uncertainty in the oil price has damaged the share price of major LNG producer Origin Energy and Woodside.
However we have a positive long term view on the commodity and hence are bullish on the prospects of these producers and are willing to wait out the recovery. The upside of a weak LNG price is it makes more competitive with coal in energy usage.
Ultimately, the value of the Australian dollar will also play a key factor in the final price received. AUD to Yen and AUD CNY are the key customer currencies.
LNG Price History
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Above chart shows the contracted price of liquefied natural gas landed in Japan.
There are moves by the US LNG entrances to link prices to the Henry Hub natural gas benchmark. However the shift has been slow due to the long term nature of contracts.
The industry has also increased volume of production to be traded on a spot basis. The LNG spot price has more volatile due to supply and demand dependent on individual producer and consumer needs.
Major Australia LNG Projects
List below highlight the major LNG Projects that are currently in production and coming online in the near future. Major local LNG producers listed on the ASX include Origin, Woodside and Santos.
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Project,Start Date,Capacity (million tonnes),Major Partners
Prelude,2017,3.5,Shell
Ichthys,2017,8.4,Inpex-Total
Wheatstone,2016,8.9,Chevron-Woodside-Kyushu
Gorgon,2015,15,Chevron-ExxonMobil-Shell
APLNG,2015,9,Origin Energy-ConocoPhillips-Sinopec
Gladstone LNG,2015,7.8,Santos-Petronas-Total-Kogas
Queensland Curtis LNG,2014,8.5,BG Group-CNOOC
Pluto,2012,4.3,Woodside-Kansai-Tokyo Gas
Darwin LNG,2005,3.7,Multiple Partners
North West Shelf Venture,1989,16.3,Woodside-BHP-BP-Chevron-Shell
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Key Risk to LNG Price
The low cost of US gas prices is supporting the inflow of gas from US to Asia. The chart below shows the trend of the export volume which the US is expected to be a net exporter in 2017. This coupled with slower than expected demand growth in Asia poses medium price risk to the commodity.
