A new report by the Institute for Energy Economics and Financial Analysis (IEEFA) predicts that a deepening gas glut poses a critical risk to the financial viability of Gladstone and some of the LNG trains will be shut within two years.
The report titled, “Australia’s Export LNG plants at Gladstone – the risks mount”, analyses how the three high cost Coal Seam Gas (CSG) to Liquefied natural gas (LNG) plants at Gladstone will be affected by
- the emergence of the US as a low cost producer and possible expansion of production out of Qatar, globally the lowest cost producer;
- falling demand for LNG, in the world’s largest market Japan;
- domestic advances in renewable energy technology and the growth of the domestic gas industry in China; and
- increase in exports from Russia and the US.
“Some of the liquefaction trains at Gladstone will cease production altogether within two years as the expanding gas glut puts relentless downward pressure on gas prices,” said report author Bruce Robertson, IEEFA Gas/LNG Australasia analyst.
“Demand by the world’s largest LNG importer, Japan, has been shrinking, and growth in China and other emerging markets has failed to keep up with the boom in supply. Nominal global liquefaction capacity closed 2016 significantly oversupplied—29% above demand.
“In all resource markets, highest-cost producers have to curtail production first. The three Gladstone plants sit at the very apex of the global cost curve, so these plants will feel the pressure to shut in capacity most acutely.
“The very best CSG fields in Australia have been already been drilled, and as a result the companies involved in LNG production on the East Coast – Shell, Santos and Origin Energy/Conoco Philips – will continue to produce at a net loss for as long as their shareholders will allow them.
“To date, despite massive drops in share price and large and continuing write-offs, investors appear to be willing to commit more equity capital. However, as the glut deepens and balance sheets continue to deteriorate, investor patience will be severely tested.
“The report also analyses how opening up the Northern Territory and New South Wales onshore gas fields, a pipeline from Western Australia and a proposed import terminal on the east coast, are all not economic in the current and forecast low global gas price environment.
“We are seeing prices in Australia for both contract and spot gas well in excess of what customers pay in North Asia. Australian Industries are going broke, investment is not flowing into Australia and domestic consumers are left shivering in winter. All the while, the Government is fiddling around and allowing the gas cartels to fleece Australian consumers with no accountability,” concluded Mr Robertson.