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The last few years have written a somewhat depressing narrative for the LNG industry, with price-cuts, layoffs and untold balance sheet damage.
But shifting environmental policy in China is now creating significant demand for gas, which may well alter market sentiments and indicate a more positive outlook in the years ahead. That is, providing demand can be met.
Saul Kavonic of Wood Mackenzie – who is due to speak at SEAAOC as part of NT Resources Week – outlines the current state of the Australian gas supply market and argues that buyer behavior is key to shaping the new wave of projects.
“At present, supply market conditions are a little precarious”, says Saul. “Demand is significantly greater than predicted only one year ago and we should ideally have started to sanction the next bulk of LNG projects last year – but that didn’t happen. If we don’t get enough project sanctions through soon, we risk not having enough supply and prices will spike early to mid next decade”.
Saul highlights barriers to private sector investment, which may present a roadblock in getting these new projects underway.
In particular, he pinpoints the ongoing reluctance of many LNG buyers to commit to long term contracts (a prerequisite for many financiers of LNG projects); and is concerned that if buyers don’t commit, only larger players will be able to deliver. Either that, or supply will remain inadequate. “In either case, we risk seeing a spike in prices”, he warns.
But, Saul argues there is hope in the form of pre-sanctioned projects, including Australian projects such as ‘Barossa to Darwin’ and ‘Scarborough to Darwin’. “Both of these are cost-competitive with other projects globally”, he says. He also highlights the PNG LNG expansion in next door Papua New Guinea and says the region is well-placed to compete for the market opening.
In a broader sense, resilience in the face of energy disruption represents a further concern for the Australian supply market, both now and into the future. “It is fair to say that the entire oil and gas market is looking to adapt and make themselves resilient to a decarbonized future”, says Saul.
“Some companies are choosing to develop a lower carbon footprint – do less oil sands and more gas and LNG. Other companies are taking it a step further and investing in renewables and green technologies. Hydrogen is coming back on the radar, which naturally complements existing oil and gas company capabilities”.
Saul says that green fuel is an easy step out for gas companies and has a lot of potential to become a part of the mix. But, he acknowledges that it is still early days and that more discussion is needed on how this would affect the sector.
Expanding on these key themes, Saul Kavonic will join a panel alongside Chiyoda Oceania President & CEO, Andrew Tan, at the SEAAOC conference – to be held 5-6 September 2018 in Darwin.