LNG has dramatically changed Australia’s energy landscape, with major projects shipping first cargoes in the past two years and others on track to come online. This article assesses the outlook for the Australian E&P industry, illustrated by three key drivers: production, resource potential and spending.
Figure 1 shows the total production for Australia, split by project and life cycle, from 2010 to 2025. LNG is the largest contributor to Australian production. Rystad Energy estimates that its contribution will continue to grow from only 25% in 2010 to around 55% in 2017, to over 65% by 2025. North West Shelf LNG, with first production in 1989, makes up about 20% of the current volumes.
The decline in production from mature fields is expected to be offset by the commencement of production from the APLNG and GLNG projects. First cargo was shipped from the Santos-operated GLNG in October 2015 with a second train put on production in May 2016. APLNG exported its first cargo in January 2016 and a second train started production in October 2016. Significant contribution to production is also expected from the Chevron-operated Gorgon and Wheatstone. Gorgon was originally expected to ship its first cargo in late 2015, but was delayed to March 2016. Wheatstone is expected to commence production in the second half of 2017. The Inpex-operated Ichthys LNG project is expected to come online in late 2017/ early 2018, and the Shell-operated Prelude FLNG is scheduled to start production next year.
Total LNG volumes are forecasted to grow to 75 million tonnes by 2020. At the same time, Australia’s total oil and gas production is expected to reach 2.8 million boe/d by 2020 with further growth potential post 2025.
Figure 2 depicts the largest projects in Australia by remaining resources and life cycle. All the projects shown are LNG developments, with most volumes located in the North Carnarvon and Browse basins in the west and the Bowen and Surat basins in the east. In the North Carnarvon Basin, the Gorgon project includes the large Jansz-Io and Gorgon fields that were put into production last year, while the Browse Basin is dominated by the Inpex-operated Ichthys field with more than 16 Tcf in recoverable resources. The onshore CBM projects, GLNG (Santos-operated), QCLNG (BG) and APLNG (Origin Energy), are estimated to account for over 30 Tcf of Australia’s LNG potential.
Figure 3 shows total spending in Australia over the period 2010-2025. Investments (capex and exploration capex) were increasing from 2010 to 2013 and peaked at 59 BUSD in 2013. Since the oil price collapse in 2H 2014, the investments have started to fall rapidly. In 2015, capital expenditures were slashed by 25%, and another 45% were removed from the market in 2016. We currently expect Australian spending to decline further in 2017 by additional 45%. Thus, capital and exploration expenditures will only account for 13.5 BUSD this year compared to 59 BUSD level in 2013.
Yet, the fall in spending in the last three years has not affected the production levels in the country, as the large part of development cost for the main LNG projects has been committed during 2010-2014. These projects include Gorgon, APLNG, Wheatstone, and Ichthys. APLNG is complete and both trains are producing since the end of last year. Similarly, Gorgon is already complete with both Jansz and Gorgon fields online from 2016 and March 2017, respectively. Wheatstone project is expected to start up this year, and Ichthys project is estimated to be brought on stream in 2018.
A new investment cycle is expected to start post 2018. The Browse project is leading the second investment cycle, as the investments in this project are estimated to grow from 1.5 BUSD in 2018 to 5 BUSD in 2023. As of May 2016, Woodside communicates that it may not make FID of Browse for up to five years, even though in 2015, FID was targeted for the second half of 2016. Also, the development of Gorgon/Jansz Stage 2 is planned post 2020, and thus we expect an additional increase in investments from the Gordon project in the long-term. Total spending in the region is likely to almost hit 2013 level again by 2025.
The rise of LNG developments has meant the beginning of a new era for the Australian E&P, marked by high-cost projects leading production growth over the next decade. In the short-run, the high investment levels committed from 2010 to 2014 lead to a substantial increase in Australia’s production from 2015 and onwards, especially driven by projects including APLNG, Gorgon, Ichthys and Wheatstone. Some important projects such as Browse LNG and Gorgon Stage 2 are also waiting to be sanctioned and brought into development in the future, leading to a further increase in production post 2025.