Australian LNG shipments are continuing despite low oil prices
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Despite the impact of the COVID-19 pandemic on energy demand and the global surplus of liquefied natural gas (LNG), Australian LNG shipments have held up surprisingly well though the demand for spot cargoes has almost vanished.
Australian projects shipped 6.9 million tonnes (101 cargoes) of LNG in April this year, a marginal increase from 6.8Mt in March and more than the 6.7Mt shipped in April 2019.
Deliveries to China are also holding up with 40 cargoes sent in April, up from 29 in March and 36 in April 2019.
Japan was the second largest destination for Australian LNG with 36 cargoes delivered, though this is well down from the 46 cargoes delivered in March.
Australian energy advisory firm EnergyQuest says that unlike the US, it is unlikely that LNG production trains will be shut-in or production cut at Australian projects as most of their LNG is sold under long-term oil-linked contracts.
These contracts mean that oil prices will need to remain very low for a considerable period before any shut-ins occur.
West coast LNG projects are believed to be cash flow positive at oil prices above $US15 ($23.31) per barrel, while the more expensive east coast projects need an oil price above $US25 per barrel.
The West Texas Intermediate Crude is currently priced at $US24.74 per barrel while the broader Brent Crude benchmark is at $US28.93 per barrel.
However, EnergyQuest believes that there will be fewer spot cargoes at current prices.
In April, there were no spot cargoes from the North West Shelf or Gorgon, while the lone cargo from Wheatstone was sold at a low price of $US1.80 to $US1.90 per million British Thermal Units (MMBtu).
The handful of cargoes from Ichthys and Darwin are believed to have been sold at around $US1.70 to $US1.85MMBtu.
On the east coast, there was one spot cargo each from APLNG and GLNG.
There is also some indication of east coast LNG buyers reducing shipments by 5 per cent to 10 per cent, which could increase supply to the domestic market.
The low oil prices have also slowed sanction of Woodside’s Scarborough LNG project and Santos’s Barossa backfill for Darwin LNG.
LNG demand in Europe and Asia is contracting due to sluggish Asian economies and full storage in Europe.
Additionally, the switch from coal to gas in Europe is mostly complete so demand growth is expected to be incremental and Asia is unlikely to absorb the excess.
EnergyQuest noted that the eroding gas price in Asia and Europe had reduced the premium that the two regions normally command over US prices, adding another hurdle to American LNG exporters.
Around 14 Asian and European companies may have cancelled loadings for about 25 US cargoes of LNG.
Domestic gas prices in Queensland were steady at $4.38 per gigajoule (GJ) at Wallumbilla and a little higher at $4.44/GJ in Brisbane compared to March.
In Sydney, short-term prices dipped from $4.81/GJ in March to $4.54/GJ while prices in Victoria and Adelaide dropped from $4.83/GJ to $4.48/GJ and from $5.42/GJ to $5.01/GJ respectively.
Short-term domestic prices are at the lowest they have been since 2016.
EnergyQuest also rubbished claims by east coast manufacturers that their Japanese competition buys Australian gas at lower prices than Australian manufacturers.
According to Japanese customs, in March the average price of Australian LNG landed in Japan was US$9.61/MMBtu, this is likely to mean a delivered cost of US$11.61 to $US12.61 per MMbtu, or between $17.58 and $19.20 per GJ.
While east coast gas contract prices have certainly been higher than short-term prices, the ACCC has been quoting prices of about $9 to $10 per GJ.