EnergyQuest Australian LNG Monthly February 2020

EnergyQuest has just released its Australian LNG Monthly for February 2020. Some of the highlights are as follows:

  • Australian LNG is starting to experience a double-whammy of lower volumes and lower prices.
  • The disruption to trade with China and Japan from the coronavirus is starting to become evident in cargoes, not yet substantial but most pronounced in shipments from Gladstone, which supplies Chinese customers CNOOC and Sinopec. In total Australian projects delivered 29 cargoes to China in February, well down on 40 in January although more than the 26 delivered in February 2019. However, cargoes delivered from Gladstone fell from 17 a year ago to 14 this February.   Further up the supply chain 12 Australian cargoes destined for China were delayed or diverted in February. Shipments from Gladstone bound for China amounted to only 1.05 Mt in February, down from 1.24 Mt a year earlier and the lowest since September 2018.
  • Thirty-one deliveries were made to Japan in February, well down on 45 delivered in January and 40 in February 2019.
  • The slump in the oil price will take two or three months to feed through to LNG price realisations but will have a significant impact. At a 12% slope to the oil price, the LNG price is US$7.80/MMBtu at an oil price of US$65/bbl but only US$4.20/MMbtu at US$35/bbl, a fall of 46%.  
  • The drop in the oil price will have knock-on effects for Australian producers, as has already been reflected in slumping share prices. Origin Energy has assumed an oil price of US$68/bbl over 2019-20 when estimating the cash distribution it will receive from its APLNG project.  It has a distribution break-even oil price of US$29-32/bbl. Santos has a free cash flow breakeven of US$29/bbl but requires a price of US$60/bbl to fund growth projects while maintaining gearing, in the absence of asset sales.
  • Less cash means less cashflow to reinvest, including in exploration and development drilling.
  • Total Australian LNG shipments in February were 6.1 million tonnes (Mt) (90 cargoes), significantly lower than 7.0 Mt (103 cargoes) in January, although than the 5.6 Mt (82 cargoes) in February 2019.

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