LNG supply to Asia driving record export levels

First Chevron Wheatstone LNG cargo departs for Japan. Image: Chevron

Liquified natural gas (LNG) now dominates Australia’s petroleum production due to high demand from Asia, according to energy advisory firm EnergyQuest.

Speaking at the Australian Petroleum Production and Exploration Association (APPEA) conference in Brisbane, EnergyQuest chief executive Graeme Bethune revealed the state of the oil and gas market in Australia last year.

He reported that oil prices were highly volatile in 2018, starting the year at $US66 ($95.40) a barrel, peaking at $US85/barrel and then tumbling to $US51/barrel by the end of the year.

By February this year, however, the price recovered to the mid-$US60s following a sharp cut in exports from the Organisation of the Petroleum Exporting Countries (OPEC).

Bethune predicted that Brent futures suggested oil prices would remain about $US60/barrel in the short and medium term, which would provide “solid margins” for the Australian oil and gas sector, which has slashed costs since the 2014 oil price collapse.

Bethune also highlighted the “overwhelming dominance” of LNG in the industry and how it was driving growth in national petroleum production.

LNG prices for Australian projects increased by at least 40 per cent between the end of 2017 and end of 2018, with exporters benefiting from the flow through of rising oil prices to oil-linked contracts, coupled with a significant fall in the Australia dollar.

As a result, Australian LNG exports reached record highs in 2018, up 22 per cent from 2017 levels.

LNG was by large going to Asia, in particular Japan, China and Korea, with Australia being the biggest supplier to China and Japan and the second largest to Korea.

The annual rate of production increased through the year and peaked in the last quarter of 2018, exceeding Qatar’s nominal capacity and ranking Australia as the world’s largest LNG exporter.

The surge in LNG prices in 2018 widened the gap between LNG prices and average east coast domestic gas prices from around $2 a gigajoule at the end of 2017 to approximately $4 a gigajoule by the end of 2018.

The dominance of LNG meant that national petroleum production reached a record high in 2018, up 14 per cent compared to 2017 and double the levels recorded in 2008 – it now accounts for 70 per cent of national petroleum production.

By contract, oil production continued its long-term decline, with output falling by 21 per cent, largely due to shutdowns of BHP’s Pyrenees oilfield and Woodside Petroleum’s Vincent oilfield, which coincides with the permanent closure of Enfield.

Australia’s premier gas production basin, Carnarvon, increased its dominance with its ramp-up of Gorgon and Wheatstone, accounting for 60 per cent of national gas production in 2018.

Oil and gas capital expenditure also notably declined to the lowest level in at least a decade last year, with $15.45 billion invested.

The decrease in investment can be explained by construction being completed on seven ‘mega projects’ in one decade, with investment expected to further decline in 2019 given the small number and value of major projects.

While Bethune notes Australia is at the end of a massive investment boom, there still remains vast opportunities of continuing growth in Asian markets, creating local jobs and also contributing to improved air quality in Asia.

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