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Australian LNG prices seen steady in FY 2018-19: government

Australia's chief economist is forecasting the price of the country's LNG on a FOB basis will be relatively stable in fiscal 2018-2019 (July-June) after rising from the 2016-2017 period, according to the Department of Industry, Innovation and Science's Resources and Energy quarterly published Monday.

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The country's LNG export unit value is forecast to average $7.2/MMBtu in 2018-2019, compared to an expected $7.3/MMBtu in the current fiscal period, and up from $6.6/MMBtu in 2016-2017, it said.

The prices are expected to be supported by oil prices as the majority of Australian LNG is sold on long-term contracts linked to the price of Japan Customs-cleared Crude oil, lagged by around three months, the Canberra-based unit said.

"The recent increase in oil prices should begin to flow through to Australian LNG prices around early 2018. The JCC oil price is forecast to average US$56 a barrel in 2018-19, up from an average US$50 a barrel in 2016-17," it said.

"The recent increase in Asian LNG spot prices should also support average Australian LNG prices in the short-term, as exporters look to capitalize on the price spike," the report added.

It did, however, caution that LNG spot prices in Asia are forecast to decline from present levels as the tightness in the market generated by Northern hemisphere winter buying unwinds.

In 2018, Asian LNG spot prices (delivered ex ship) are forecast to average around $6.50/MMBtu and in 2019 LNG spot prices are expected to fall to $5.40/MMBtu as additions to global supply capacity outstrip growth in LNG demand, it said.

Meanwhile, the chief economist's report lifted its forecast for Australian LNG volumes to 76.5 million mt for 2018-2019, up from the 73.8 million mt figure it gave in the last quarterly.

The country's LNG export volumes are surging as new projects come online. Shipments for the current fiscal period are expected to total 63 million mt, which is up from 52.1 million a year earlier, and from 36.9 million mt a year before that.

"Higher export volumes will be driven by increased production at Gorgon, as well as the completion of the three remaining LNG projects under construction -- Wheatstone, Ichthys and Prelude," it said.

Chevron's Wheatstone project is slated to be the first completed with its second train due to start in the June quarter of this year, while Inpex's Ichthys project in the Northern Territory is due to produce first LNG in the March quarter.

Some reports indicate that Ichthys' second train could begin operations "as soon as a few months later," the report said.

Shell's Prelude FLNG project, expected to be completed between May and August, should wrap up Australia's recent wave of seven LNG projects, it said.

Australia's cost-competitiveness and flexibility in contracts does throw some uncertainty into the outlook for export volumes, the report cautioned.

Buyers may utilize take-or-pay provisions in their oil-linked contracts if oil prices are higher than spot prices, or if they become over-contracted for LNG, it said.

--Nathan Richardson,
--Edited Alisdair Bowles,