Australian LNG exporters may avoid major output cuts, but reduce spot: EnergyQuest

Australia's LNG export projects are likely to weather the weak price environment caused by the COVID-19 pandemic and avoid any major output cuts or trains shut-ins but there is expected to be fewer spot cargoes, consultancy EnergyQuest said Thursday.

The fact that most Australian LNG is sold under long-term oil-linked contracts should hold the country's projects in better stead than those in the US, the firm said.

"Oil prices would need to remain very low for a considerable period for there to be shut-ins," EnergyQuest said, noting that there are indications that Western Australian LNG projects are cash flow positive at oil prices above about $15/bbl and east coast projects above $25/bbl.

So far, Australian LNG operators have not flagged any cuts to their fiscal or calendar year production guidance figures.

In the US, LNG feedgas volumes tumbled into the low 6 Bcf/d range this week, their lowest since the October 2019 maintenance season, amid growing signs that US offtakers could be deferring or foregoing additional, unreported export volumes in May.

EnergyQuest did say that Australian spot volumes are likely to take a hit.

In April in Western Australia, there were no spot cargoes from the Woodside-operated North West Shelf Project or the Chevron-run Gorgon facility. Chevron and Woodside's Wheatstone LNG joint venture in WA sold one cargo at $1.80-$1.90/MMBtu, it said.

There were similarly low prices seen in the northern territory with Inpex's Ichthys and the ConocoPhillips-owned Darwin LNG with two cargoes and one cargo, respectively, believed to be around $1.70-$1.75/MMBtu, EnergyQuest said.

The Darwin cargo was originally scheduled for delivery to a Japanese customer but was deferred, EnergyQuest said.

On the Australia's east coast, there was one spot cargo from Origin Energy's Australia Pacific LNG project during the month and one Petronas spot cargo from Santos' Gladstone LNG because of the cancellation by a buyer, it said.

"There is also evidence from Santos and Origin of buyers exercising downward contract flexibility (potentially reducing shipments by 5-10%). This may mean an increase in diversions to the domestic market on the east coast," EnergyQuest noted.

The Australian projects may be withstanding immediate production cuts amid the global surplus of LNG and slowdown in economic activity related to the virus outbreak and global shutdowns, but projects have been delayed.

These include Woodside's Scarborough LNG project and Santos' Barossa backfill for DLNG.

EnergyQuest also reiterated its view that one, or possibly two, LNG trains at the Port of Gladstone will need to be closed within the next decade as increased volumes are diverted to the domestic market.

"As we get into the 2030s the east coast LNG contracts will begin to tail-off. At the same time, as the closure of coal-fired power generation accelerates, the demand for natural gas to back-up renewables is likely to grow," EnergyQuest added.

Gladstone currently has six LNG trains. APLNG, GLNG and Shell's QCLNG have two each. They have a combined nameplate capacity of 25.3 million mt/year.

Australia's total LNG exports in April were up at 6.9 million mt, having risen from 6.7 million mt a year earlier and from 6.8 million mt in March, EnergyQuest said.

It noted that there were 40 cargoes delivered to China during the month, up from 36 in April last year and 29 in March.

Deliveries to Japan rose on the year to 36 cargoes from 33, while having slumped from the 46 cargoes delivered in March. And, Australia delivered 10 cargoes to South Korea in April from 7 a year earlier, it said.