Australian petroleum production hit a record 1.1 billion barrels of oil equivalent (MMboe) in 2019, an increase of 14.1 per cent year-on-year and double the output of 545MMboe in 2014.

This was due in no small part to the start-up of production from the Ichthys and Prelude liquefied natural gas (LNG) projects in late 2018.

LNG exports also reached a record 77.3 million tonnes in 2019, cementing Australia’s claim as the largest LNG producer globally, according to new data from Australian energy advisory firm EnergyQuest.

This is due in no small part to east coast gas production rising 5.5 per cent year-on-year to a record 1,914 petajoules (PJ) thanks to a surge in development drilling from mid-2018 that drove coal seam gas production up 7.2 per cent to 1,486PJ.

Meanwhile, Western Australia’s domestic gas production rose 6.4 per cent to a record 415.8PJ.

However, the oil and gas sector faces significant challenges from the global impact of the COVID-19 coronavirus outbreak, which has contributed to a drastic fall in North Asian LNG spot prices.

EnergyQuest noted that the Platts spot price had dropped below $US3 ($4.53) per million British thermal units as high inventories, warm winter weather, increased supply and the virus all took their toll.

While Australia exports relatively few spot cargoes, the fall in oil prices will affect prices under the common oil-linked LNG contracts, though this will probably not become apparent until the second quarter of 2020 due to lags in contract prices.

There is also potential for delays in LNG cargoes, though EnergyQuest noted that its tracking data suggested Australian exports to China had been largely unaffected so far.

Western Australia Premier Mark McGowan has warned that the health crisis could delay development of the giant Browse gas field.

While a final investment decision for Browse was originally expected by the middle of 2021, operator Woodside Petroleum (ASX:WPL) recently announced that it was pushing back the decision to late 2021.

McGowan also expressed his hope that Woodside’s Scarborough development off the Pilbara coast would be given the go-ahead later this year.

“Of course, you’d like to get these projects up,” the ABC quoted the Premier as saying.

“With Browse, it’s clearly going to take a little bit more time and I think the coronavirus issues might have actually impacted that. But we will continue to work with the companies to get to a resolution.”

However, Woodside boss Peter Coleman said in February that while the virus had caused temporary difficulties in reaching gas sales agreements for Scarborough, it was not expected to have lasting effects.

Consultancy Wood Mackenzie noted that getting the Browse partners to agree on where gas from the project would be processed would be a bigger problem than the impact of the virus.

“Coronavirus will have a short-term impact on LNG prices and Browse won’t start producing hydrocarbons until 2026-27, possibly even later,” Woodmac senior research analyst Daniel Toleman said.

“So, I don’t think coronavirus is going to have a drastic impact on that project.”


Oil Demand

The Organization of the Petroleum Exporting Countries is also pushing to address falling oil demand by calling for a 1.5-million-barrel-per-day reduction in production to be applied pro-rata between OPEC (1 million barrels per day) and non-OPEC producing countries (500,000 barrels per day).

Woodmac noted that while it projects world oil demand to fall by 2.7 million barrels per day, the success of OPEC’s recommendation would hinge on compliance by both its members and non-members.

“Whether Russia will agree to the cuts is the million-dollar question. Russia hasn’t signed on yet and as the leader of the non-OPEC group, their agreement is key,” Woodmac macro oils vice president Ann-Louise Hittle said.

“Given their history of co-operation with OPEC, we expect they will agree. Russia could, at the very least, hold production flat during the second quarter.”

However, should demand continue to fall in the second quarter, Hittle expects that OPEC will need to revisit the cuts and reassess them.

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