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Australia’s LNG Boom: Opportunities and Challenges QUPEX Queensland Irish Association Paul Balfe Executive Director 27 May 2014
Australia’s LNG Boom: Opportunities
and Challenges
QUPEX Queensland Irish Association
Paul Balfe
Executive Director
27 May 2014
Key Messages
1. Changing domestic gas market
2. LNG developments
3. Domestic market implications:
opportunities & risks
4. Challenges to continued growth
– International competition
– Cost competitiveness
Qupex May 2014 Slide 2
EA domestic gas demand
expectations in 2009
Qupex May 2014 Slide 3
Source: ACIL Allen modelling
EA domestic gas demand
expectations NOW
Qupex May 2014 Slide 4
Source: ACIL Allen modelling
EA domestic gas demand
expectations NOW
Qupex May 2014 Slide 5
Source: ACIL Allen modelling
Why is EA domestic gas
demand collapsing?
• A Perfect Storm:
– Competing demand from LNG Projects • Driving rising gas prices
– Manufacturing industry declining • Strong A$; declining competitiveness
• Manufacturing closures affect direct gas demand and indirect gas demand (via electricity)
– NEM electricity demand falling • With gas-fired electricity generation most heavily affected
– C-tax low to zero; rising gas prices; low electricity pool prices; black & brown coal running hard (no Contract for Closure); RET-driven renewables keep coming in
• No new entrant base load plant before 2020
Qupex May 2014 Slide 6
Contraction in the NEM
• Energy in the NEM turned the corner in 2008 – Sustained decline is without precedent in the history of the industry
– Energy reduction from 2008-09 to 2012-13 = 13,400 GWh (scheduled and semi-scheduled basis as generated)
• Equivalent to a 1,800 MW generator @ 85% capacity factor
• Why? – Weak manufacturing/strong A$; renewables (wind/roof top solar); demand
response to rising prices
Source: ACIL Allen based on AEMO data
1.4% 0.7% 0.7% -0.8% -1.2% -2.1% -2.6%
-3.0%
-2.5%
-2.0%
-1.5%
-1.0%
-0.5%
0.0%
0.5%
1.0%
1.5%
2.0%
0
50,000
100,000
150,000
200,000
250,000
2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13
En
erg
y G
Wh
as g
en
era
ted
Scheduled and semi-scheduled
NSW1 QLD1 SA1 TAS1 VIC1
Minus 6.7%
Qupex May 2014 Slide 7
Projected NEM generation mix
• Resurgence of coal generation – Black coal output up 17% in 2020 compared with 2013
– Brown coal output up 5%
• Natural gas shrinking – Wholesale gas costs and wind suppression
Black coal53.2%
Brown coal24.0%
Hydro8.7%
Natural gas12.0%
Solar0.0%
Wind2.1%
2013
Black coal56.9%
Brown coal23.1%
Hydro7.8%
Natural gas3.8%
Solar0.2%
Wind8.3%
2020
0
50,000
100,000
150,000
200,000
250,000
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
GW
h a
s g
en
era
ted
Black coal Brown coal Hydro Natural gas Solar Wind
2013
2020
Forecast
Qupex May 2014 Slide 8
But TOTAL EA gas demand
is growing strongly …
• LNG exports will see total gas consumption in EA more than triple by 2030
Qupex May 2014 9
Source: ACIL Allen modelling
Australia’s LNG
construction boom
Qupex May 2014
0
20
40
60
80
100
120
140
20
10
20
11
20
12
20
13
20
14
20
15
20
16
20
17
20
18
20
19
20
20
20
21
20
22
20
23
20
24
20
25
20
26
20
27
20
28
20
29
20
30
LNG Capacity (mtpa)
Australia LNG Production:
Existing, Committed & All ProposedArrow 2
Arrow 1
Timor Sea LNG
Sunrise
Bonaparte
Scarborough
Pluto 3
Browse
Pluto 2
Prelude
Ichthys
Wheatstone
APLNG 2
APLNG 1
GLNG 2
GLNG 1
QCLNG 2
QCLNG 1
Gorgon
Pluto 1
Darwin LNG
NWS
Committed
10
Source: ACIL Allen compilation of public data
Where will new gas come
from? • Conventional:
– Bass Strait (Gippsland, Otway, Bass Basins) • eg Kipper/Tuna/Turrum; Halladale/Blackwatch; Rockhopper
• CSG – Queensland: best of the resource is LNG committed; marginal
production economics???
– NSW: major resources but little recent progress – bogged down with policy/approvals issues and public opposition to development
• Missed the boat?
• “Unconventional” (Shale gas, tight gas) – For EA most promising is Cooper Basin tight/shale gas
• Encouraging technical results
• Large in situ resource established – Some “wet gas”
• Early commercialisation under way (eg Moomba 191)
• Cost structure/economics?? No cheap gas without associated liquids
Qupex May 2014 Slide 11
Brisbane
Gladstone
Moranbah
Townsville
Newcastle
Sydney
Hobart
Melbourne
Adelaide
Mount Isa
Bowen CSG
Surat CSG
Gunnedah CSG
Sydney CSG
Ballera
Iona
Lang LangLongford
Orbost
WallumbillaMoomba
Gladstone CSG
LNG plantsQueensland
New South Wales
South Australia
Victoria
Tasmania
Northern Territory
Gas prices now reflect
market interconnection • Previously separated
geographic markets now interconnected
• Producers have options where they sell
• Producers will seek the best prices for their products
• Price trends are reflected throughout the interconnected market
Qupex May 2014 12
Wholesale gas prices:
rising throughout EA
Qupex May 2014
AEMO data
Slide 13
The market is responding • New gas contracts are being written
– Mainly out of Victoria into NSW » GBJV to Lumo 22 PJ, 3 yrs from 2015
» GBJV to Origin 432 PJ, 9 yrs from 2014
» GBJV to Orica 42 PJ, 3 yrs from 2017
– Little re-contracting in Queensland
• Gas prices – Expectation of rising prices + lack of alternative suppliers has
pushed prices up ahead of LNG start-up
– Inclusion of oil price linkage now standard
– Detailed pricing terms and actual pricing levels generally confidential » Speculation is around $7 to $9/GJ base price (WCL release
confirms: A$8.58/GJ for $100/bbl oil, 0.92 USD/AUD)
» For smaller industrial users purchasing through retailers, asking price of $9 to $11/GJ seems to be the norm
Qupex May 2014 Slide 14
Future gas price risk
Qupex May 2014
$0.00
$2.00
$4.00
$6.00
$8.00
$10.00
$12.00
$14.00
$16.00
Indicative wholesale gas
price $/GJBase Supply
Low Supply
High Supply
No spike
Long-term settlement prices: indicative only
Will a “price bubble” emerge? How high? How long?
Slide 15
CSG LNG supply risk
Qupex May 2014 Slide 16
ACIL Allen analysis based on Santos 2013 Reserves Statement; gas requirement for 20 year operation
LNG Growth: can we
maintain the momentum?
• Emerging North America LNG exports
– Abundant gas
– Low cost and/or liquids by-product
– Access to Asia-Pacific markets
• Australian cost environment
– Project execution risks
– Labour costs
Qupex May 2014 Slide 17
Growth driver: Asia
energy demand growth
Qupex May 2014
EIA “International Energy Outlook 2013”
Slide 18
Current LNG Supply to Asia
Qupex May 2014
Data for calendar 2012, sourced from IGU “World LNG Report 2013”
Total 167 Mt
in 2012
Slide 19
Different LNG buying strategies
Qupex May 2014
Data for calendar 2012, sourced from IGU “World LNG Report 2013”
Sourced from 17 of 17 producing countries
Total
87.3 Mt
Sourced from 11 of 17 producing countries
Total
14.8 Mt
Sourced from 5 of 17 producing countries
Total
14.0 Mt
Total
36.8 Mt
Sourced from 14 of 17 producing countries
Slide 20
US LNG applications
As at March 2014:
37 project applications; 280 Mtpa capacity
Source: US Department of Energy
Qupex May 2014
6 approved for non-FTA export (Sabine Pass, Freeport *2, Lake Charles; Dominion
Cove, Cameron)
67 Mtpa capacity
21
KM LNG 10 Mtpa BC LNG 1.8 Mtpa
Canada LNG 24 Mtpa
Progress Energy 19.7 Mtpa WCC LNG 30 Mtpa
Prince Rupert 21.6 Mtpa
Woodfibre LNG 2.1 Mtpa
Jordan Cove 12 Mtpa
Sabine Pass 17 Mtpa
Freeport 14 Mtpa
Lake Charles 16 Mtpa
Dominion Cove 6 Mtpa
Cameron13 Mtpa
Canada
Approved Exports
121 Mtpa
U.S. Approved Exports
(Non- FTA)
67 Mtpa
Qupex May 2014 22
U.S./Canada LNG export
projects
Key risk: Australian cost
environment
Qupex May 2014 23
Australia’s labour cost
challenge
• Australia has the highest
average O&G salaries out
of 53 countries surveyed
– Across all work categories
Qupex May 2014 24
+92% +84% +66% +71% +47%
Australia’s LNG Boom: Opportunities
and Challenges
QUPEX Queensland Irish Association
Paul Balfe
Executive Director
27 May 2014
