EnergyQuest Australian LNG Monthly December 2020

EnergyQuest has just released its Australian LNG Monthly for December 2020.

EnergyQuest estimates that Australia exported a record 78.0 Mt of LNG in 2020, up from 77.5 Mt in 2019. This is a good result given the disruptions to Gorgon, the fact that Prelude hadn’t produced since early February, issues seen at Wheatstone with reduced production, and the COVID-19 destruction of LNG demand, particularly early in the year. 

The east coast had record production of 22.6 Mt, although up only 1% overall from 22.4 Mt in 2019.  One of the reasons why it has been possible to maintain strong Gladstone exports is that use of gas for electricity has been falling, replaced by renewables. Use of gas for generation fell by 39 PJ in 2020 compared with 2019. Replacing east coast gas with renewables to free up gas to export to China to replace coal is a win-win both environmentally and economically.

Japan once again was Australia’s top export destination with 30.3 Mt (38%) of Australian export volume, down slightly from 30.7 Mt (40%) in 2019. Notwithstanding political tensions, China imported 29.6 Mt (37%) of Australian export volume, up from 28.8 Mt (37%) in 2019.  Korea continues to be Australia’s third most popular destination, importing 8.1 Mt in 2020, compared to 7.7 Mt in 2019. 

EnergyQuest estimates total 2020 LNG export revenue was A$36.1 billion, down from A$48.7 billion in 2019. 

Energy prices have had a roller-coaster year, primarily due to Covid-19. The Brent oil price (which feeds into LNG prices) bottomed at US$14.85/bbl at the end of March but was back up to US$51.22/bbl by year end. Back in April most global gas price benchmarks were around US$2.00/MMBtu. They have all since jumped but by widely different degrees. The Platts JKM reached a record of US$32.49/MMBtu on 12 January but has since started to soften.

Debate continues about an appropriate benchmark for assessing pricing outcomes in the east coast gas market. The experience with the JKM in 2020 demonstrates the imperfections of the LNG spot market and trying to relate east coast prices to LNG spot prices produces bizarre results. Back in July the ACCC Wallumbilla netback (based on the Platts JKM) was $2.29/GJ, a price well below the cost of producing east coast gas. Then, by January, the netback had reached $8.73/GJ, driven by the surge in the JKM and a price at which manufacturers claim they cannot afford. Rather than trying to use LNG spot price assessments or an index from another region (such as Henry Hub) it would make more sense to use real export prices in calculating east coast netbacks.

Information about the EnergyQuest Australian LNG Monthly is available by clicking here