The Australian government has revised up its forecast of the country's LNG export price for the current and next fiscal years, while trimming back its expectations for export volumes, it said Monday in the Resources and Energy Quarterly.
Receive daily email alerts, subscriber notes & personalize your experience.Register Now
In the report released by the Department of Industry, Innovation and Science, it said it is now expecting Australia's LNG export unit value to average $7.80/MMBtu in fiscal 2017-2018 (July-June), up from $7.30/MMBtu in the October-December report.
And, it lifted its 2018-2019 forecast by $1/MMBtu to $8.20/MMBtu.
For the first time in a year, the report also gave forecasts stretching further out than the year ahead. It is expecting the $8.20/MMBtu level to be maintained in fiscal 2019-2020 and in 2020-2021 before easing back to $8/MMBtu and $7.90/MMBtu in the next two fiscal years.
"Higher export prices will be driven by rising oil-linked contract prices," the Canberra-based unit said, noting that most Australian LNG is sold into Asia on contracts linked to the price of Japan Customs-cleared Crude oil.
"However, low LNG spot prices will play some role in constraining the average export price realized over the next few years, as Australian exporters increase their share of sales at spot prices," the report said.
Australia, which is expected to overtake Qatar as the world's largest LNG exporter in 2019, is not immune from supply side competition, it added.
"While Australian LNG exports are projected to increase, the capacity utilization of Australian LNG export projects is expected to edge down as supply side competition increases over the next few years," it said.
The extent to which capacity utilization declines will depend on the flexibility that buyers have in their contractual arrangements with Australian exporters as LNG contracts often include clauses which allow buyers to reduce purchases to minimum take-or-pay levels, it said.
The flexibility with which buyers can reduce purchases on the contracts is likely to be important if oil-linked contract prices and spot prices diverge, encouraging buyers to reduce imports on contracts to minimum levels and boost spot market purchases, it said.
Take-or-pay levels are thought to be around 85% of contracted volumes but can vary from contract to contract.
The report pointed to the major expansion of global LNG supply capacity currently underway, with around half of all new capacity to come from the US.
"By the end of 2019, all six LNG projects in the US are expected to have commenced operations, bringing the combined nameplate capacity of US LNG projects to 67 million mt," it said.
Along with Australia and the US, Russia is expected to see capacity additions, expanding over the next few years as the 16.5 million mt/year Yamal LNG project comes online, it said. The Yamal project shipped its first cargo from the first of its three LNG trains in March 2018.
While on current projects, Australia will overtake Qatar as the world's largest LNG exporter next year. But the narrow difference between forecast exports from the two nations means that it is not a certainty, the report said.
The Department scaled back its 2017-2018 (July-June) forecast for Australian LNG exports from its previous quarterly by 1.4 million mt to 61.6 million mt, and by 2.4 million mt to 74.1 million mt for the next fiscal. Export volumes are then tipped to steadily increase each year to 78.9 million mt in 2022-2023.
"Higher export volumes will be driven by the completion of the three remaining LNG projects under construction -- Wheatstone, Ichthys and Prelude. The completion of these three projects will bring the combined nameplate capacity of Australia's LNG projects to 88 million mt," it said.
Chevron's Western Australia-based Wheatstone project is likely to be the first to be completed, with train 1 already in production and train 2 due to come online in the current quarter.
"Shell has indicated that the Prelude Floating LNG project will be completed between May and August 2018. First gas production at Inpex's two-train Ichthys project is expected to start in April or May 2018," the report noted.
Some additional export capacity could be added later in the outlook period with Woodside having concluded feasibility studies for a capacity expansion at the Pluto project of between 0.7 million mt/year and 3.3 million mt/year, it said.
"The first expansion option -- debottlenecking -- would add just under 1 million mt of capacity. The second -- an off-the-shelf train that would plug-in to the existing infrastructure -- would add 1 to 1.5 million mt," it said.