EnergyQuest has just released its Australian LNG Monthly for November 2020.
November was a strong month for Australian LNG exports, with 6.9 million tonnes (Mt) shipped, the highest since April this year. This was despite supply disruptions from Gorgon, Australia’s second-largest project, and delays to the start-up of the Prelude floating LNG project. One of the reasons for the strong performance was record production from the east coast LNG projects at Gladstone. Taken together, the Gladstone projects exceeded nameplate capacity for the first time since exports commenced in January 2015.
Total Australian exports for the year to November are running 1.2 Mt ahead of the same period last year and EnergyQuest expects that total exports for the year could reach a new record of 78 Mt, up on the 77.5 Mt exported in 2019.
The two biggest markets for Australian LNG are Japan and China, which both took 2.6 Mt in November, higher than November 2019 in both cases. The third and fourth biggest markets were Korea and Taiwan.
While export volumes have done well during 2020, prices have been gutted. In March, just eight months ago, total LNG export revenue was $4.4 billion. By September it was down to $1.8 billion. The good news is that revenue is starting to recover with higher oil and LNG spot prices. In October export revenue was $2.2 billion and EnergyQuest expects that it may have reached $2.9 billion in November.
LNG spot prices have staged a remarkable recovery. As of 11 December, the Platts JKM for January was US$11.23/MMBtu, a more than 26-month high and higher than oil-linked prices, currently around US$5.36/MMBtu. As recently as June the JKM was US$2.00/MMBtu. Platts attribute the stronger spot price to a tighter shipping market, persistent supply disruptions and expectations of cold weather in China and South Korea. Some of the supply disruptions driving higher prices are Australian, reflecting not only the repair work at Gorgon but also possible issues at Wheatstone and Ichthys.
Supply issues at west coast projects can have indirect impacts on east coast domestic gas prices through their impact on LNG spot prices. Consistent with higher LNG spot prices, short-term domestic gas prices were higher in all east coast markets in November than in October, although still below levels in November 2019. The Wallumbilla price averaged $5.88/GJ in November, up from $4.99/GJ in October although below $7.22/GJ in November 2019. The Wallumbilla price in November was similar to the ACCC netback estimate of $5.71/GJ.
The massive volatility in LNG spot prices also leads to massive volatility in east coast LNG netback prices. This is important amidst calls for the federal government to require LNG producers to offer gas domestically at netback prices. In July the ACCC Wallumbilla netback price estimate was $2.29/GJ, well below the cost of gas production. At the current LNG spot price of US$11.23/MMBtu the Wallumbilla netback price would be $12.53/GJ (using the ACCC methodology and a 0.75 exchange rate), more than most domestic manufactures can afford.
Information about the EnergyQuest Australian LNG Monthly is available by clicking here