Export earnings from LNG are set to tumble from earlier expectations, due to the dive in global oil prices.
Analysts from Westpac Bank have undertaken new modelling that predicts, provided oil prices continue the forward curve, export earnings from LNG will amount to only $36 billion in 2017-18, Brisbane Times reported.
The new estimates for gas export earnings represent little more than half of the $67 billion estimate, which was based on 2013-14 prices, bad news for companies that have heavily invested in Australian gas production in recent years.
However, the “forward curve” used in energy markets is an estimate of future spot prices based on existing contracts for delivery of commodities.
The benchmark Brent oil price forecasts show a more optimistic outlook than the forward curve, putting 2017-18 gas revenue at $51.6 billion.
Even with the worst case price depression, the forecast still represents a marked increase on the $16 billion of export revenue in 2013-14, albeit from the trebling of production capacity as a result of $200 billion worth of investment in projects soon to come online.
According to Westpac modelling, if the forward curve is correct then the increased production from seven new gas projects will only double the value of exports over the next four years.
Westpac said LNG prices in Japan are closely tied to crude oil prices, with a four to seven month lag, meaning the market is yet to see the worst of the effects on LNG prices.
Westpac global head of foreign exchange and commodities strategy Rob Rennie said by the time the bulk of Australia’s new gas projects come online the LNG prices should be back on the upswing.
“We don't know the exact timing of GLNG, APLNG and Gorgon but we're assuming that at some point in the second half of this year we will start to see those projects being commissioned and exports beginning to leave,” Rennie told Brisbane Times.
“That should be past that trough in terms of prices and we should be beginning – depending on how crude oil prices evolve – to see some signs of stabilisation and improvement.”
However, Westpac senior economist Justin Smirk said federal and state budgets could suffer if government assumes higher prices for oil and LNG.
“The size of the magnitude of the fall in oil prices and the responsive fall in gas prices would have taken most forecasters by surprise,” he said.
Back at home, an entirely different story is being told for domestic gas prices, which are predicted to rise sharply as a result of the increased export of LNG from Australian projects.
A new report from the Melbourne Energy Institute entitled ‘The Dash From Gas’ predicts a massive “price shock” of exorbitant gas prices in NSW as domestic markets are opened to international markets for the first time.
The report also predicts that, contrary to predictions made by gas companies, demand for gas will decline as consumers move towards more economical energy sources for heating and cooling, chiefly electricity but also rooftop solar, which is now a burgeoning market.
Melbourne Energy Institute energy advisor Tim Forcey and director Mike Sandiford authored the report, and forecast that expanding gas networks and development of new coal seam gas fields in NSW will increase the costs of production, and in turn increase the cost to the consumer.
With demand set to decrease, the overestimation of demand by gas companies would result in unnecessary and poor investment in production expansion, which would drive up the cost of gas.
Increased costs combined with a lessening demand would provide an environment for price shock.
Factors said to decrease demand for gas include ongoing energy efficiency schemes, technological improvements in gas and electrical devices, progressing renewable energy development and production (including self-generation of power with rooftop photovoltaics), warmer winter temperatures, reduced manufacturing industry, and fuel-switching to coal-fired electricity and renewables.