Oz LNG doom and gloom #2

There are media reports today that the oil price slump is a threat to Australian LNG projects.

The fall is unlikely to have an impact on existing projects, which have contracts they have to fulfil. They need to ramp up as quickly as possible to start earning cash so there is unlikely to be a slowing down of development. It is also expensive to demobilise and re-mobilise. GLNG have some s-curves in their contracts to manage oil price risk and Origin have said that a US$50 oil price over the life of APLNG would allow them to recover their cost of capital. US$35 would cover project costs and financing obligations. INPEX has said Ichthys breaks even at US$30 oil. Other players also took account of oil price risk at FID (when oil prices were lower anyway).

 Australian projects generally need a high oil price so a sustained fall in the oil price would make it harder for new projects, although the concurrent fall in the currency helps.  The main issue concerning new LNG projects at present is that buyers are mostly focussed on US projects, making it hard for new projects elsewhere, including Australia and Canada.

As for the fall in the oil price cutting LNG-reliant export revenue, Australia spends nearly $40 billion a year in importing crude oil, petrol, diesel and other petrleum products against $26 billion earned from exports of LNG, crude oil and products so a fall in the oil price is good for the balance of payments (and also motorists). More on this in our November EnergyQuarterly report.

https://www.energyquest.com.au/reports.php?id=1