February 1, 2015
Author: Leslie Wei, Analyst, Rystad Energy
Publisher: LNG Industry, February Edition
Australia has experienced an extraordinary surge in LNG investments over the last 5 years. As these projects start to come online, LNG supply from Australia will increase considerably, from ~25 MPTA in 2015 to over 50 MTPA in 2017. This article will start with an overview of the global LNG trends, and then take a deep dive into the Australian market.
LNG is currently being produced in 20 countries across all continents. Figure 1 shows the average yearly historical and forecasted production for the top 10 countries from 2010-2030. Production is estimated project by project and is based on operator reported start-up year and total capacity. As of 2015, Qatar is the largest producer with 30% of the total market share. With no new projects expected to come online in Qatar, production will remain at current levels through 2030.
Australia is the country investing most heavily in LNG. From 2010 to 2015, Australian investments accounted for over 60% of the total LNG expenditures. Due to new projects coming online, LNG production in Australia is expected to surpass Qatar in 2020, and produce twice as much by 2030. Figure 2 shows the investments in Australia LNG projects. Operators invested heavily from 2011-2014, and are currently decreasing expenditure as the investment cycle comes to an end. Investments are expected to pick up again in 2018 as new projects get sanctioned. The main LNG projects in Australia are shown in further detail in table 1 and 2.
The map below shows the LNG plant locations in Australia, specifying the current stage of each plant, along with all gas fields. The size of each gas field corresponds to the estimated economically remaining resources as of January 1, 2015. The resources for each field is further broken down into producing fields (brown), sanctioned fields (yellow), discovered fields (green), and undiscovered fields (blue). As seen from the map, LNG plants are predominately located along the coast of Western Australia and Queensland. The Australian Oil and Gas Industry will soon be dominated by LNG production. As projects come online, LNG production is expected to cover 50% of the total Australian production in 2015 and increase to 60% just two years later.
Table 1 illustrates the 10 largest producing and under development projects in Australia sorted by remaining resources. Start-up dates and Development costs are based on estimates from the operators. Development costs are the current cost estimates for not yet producing fields and the final development cost for producing fields. Cost overruns show the difference between the original cost estimates and final costs or current estimates. Table 1 only includes the trains that have already been sanctioned. Expansion opportunities are possible for some projects, i.e. Gorgon with a proposed 4th train, Australia Pacific with a two train addition, and Wheatstone with an additional three train expansion. Details for the expansion candidates and top sanction candidates are listed in table 2.
Of the 4 currently producing plants, North West Shelf LNG was the first to start production in 1989 and currently makes up ~30% of total Australian production. Darwin LNG was the second to start production in 2006. The Darwin LNG plant, located in the Northern Territory, serves the Bayu-Undan field, which is located in the Joint Petroleum Development Area between Australia and East Timor. Darwin is also expected to serve the Petrel, Tern and Frigate gas fields since Santos and GDF dropped the Bonaparte FLNG design in June 2014. Woodside operated Pluto, started production in 2012. A possible expansion opportunity for a second train has been stalled due to insufficient gas supply. The final project that is currently producing is the Queensland Curtis LNG plant, which was commissioned during the fourth quarter of 2014.
Three projects are expected to start production in 2015. Gorgon, the largest project in terms of remaining resources, will process gas from the Gorgon and Jansz-lo fields. Gorgon was initially estimated to cost 42 BUSD, but current estimates are now at 54 BUSD. Australian Pacific LNG and Santos GLNG are also expected to start production in 2015. Both LNG plants serve onshore fields and convert coal seam gas to LNG.
Ichthys LNG and Wheatstone LNG are expected to start producing in 2016. Wheatstone LNG experienced the highest cost overruns of the top projects going from an original estimate of 17 BUSD to 29 BUSD. Wheatstone will process gas from Chevron operated Wheatstone and Iago, and Apache operated Julimar and Brunello. In December 2014, Apache agreed to sell its 13% stake in Wheatstone to Woodside.
Table 2 illustrates the 6 largest sanction candidates for Australian LNG.
Companies are struggling to make the non-sanctioned projects economical. Woodside delayed the FEED and FID phases of Browse from 2014 year end, and mid-2015, to mid-2015 and mid-2016. Furthermore, in June 2014, Santos and GDF Suez, dropped the plans to go forward with Bonaparte FLNG plant.
Figure 4 shows the global LNG gas supply in 2025 broken down by different sources of production and the corresponding breakeven prices. The breakeven price only includes future cash flows and is the gas price which gives an NPV of zero. The width of each box indicates the 2025 LNG production, and the height of each box represents the 75% interval for the breakeven prices. The dot shows the weighted average of the breakeven price for each of the sources. According to the chart, the largest contributors to 2025 production is expected to be North America, where the projects are largely unsanctioned, followed by sanctioned Australian projects, and sanctioned Russian projects. Breakeven prices are strongly related to the current development phase of a project. Qatar and South American sanctioned projects have the lowest breakeven prices since these areas are mature and most of the development costs are already sunk. Unsanctioned projects naturally have higher breakeven prices since estimated costs are speculative and not yet incurred. Unsanctioned projects in Asia have an average breakeven price of ~12 USD/kcf, and unsanctioned projects in Russia have an average breakeven price of ~11 USD/kcf. Among the unsanctioned projects, Australia is the second best in class after East Africa. With breakeven down to 9 USD/kcf, these fields should be commercial as long as the East Asia gas LNG price remains high. The largest competitor to new Australian projects is potential NA LNG export; however, the shorter distance to the consumer market puts Australian LNG at an advantage.
Australian LNG is important to its local economy and the global gas market. Since 2010, Australia has been investing heavily in new LNG plants, now these projects are getting ready to come online and the investment cycle is coming to an end. Over the next 3 years, investments are expected to drop ~65% and production will increase 130%. In 2014, several unsanctioned projects have been delayed and dropped (Browse, Bonaparte, Arrow). Even though some projects are struggling to be economical, the Australian unsanctioned projects are still competitive according to the global supply curve. Pending the approval of non-sanctioned projects, Australia will experience a new investment cycle as soon as 2018.
Contact: Leslie Wei, Analyst
Phone: +47 24 00 42 00
Mobile: +47 90 22 00 76
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Phone: +47 24 00 42 90
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About Rystad Energy
Rystad Energy is an independent oil and gas consulting services and business intelligence data firm offering global databases, strategy consulting and research products.
Rystad Energy’s headquarters are located in Oslo, Norway, with additional research teams in India. Further presence has been established in the UK (London), USA (New York & Houston), Russia (Moscow), Africa as well as South East Asia.