Low oil price a risk for LNG projects: experts
Australia's liquified natural gas projects are more vulnerable to a lower oil price than to competition from the US, Canada or Mozambique, energy experts say.
Dr Fereidun Fesharaki, chairman of Singapore-based consultants FACTS Global Energy, forecast that oil prices would remain around $US80-90 a barrel for the second half of this decade - significantly lower than the $US125 a barrel forecast by the International Energy Agency, which he described as "way too high".
US West Texas Intermediate crude oil prices are currently around $US87 a barrel and Brent is trading at $US109 a barrel.
At high oil prices, Dr Fesharaki said, "everything works" for LNG developers. But persistently lower oil prices would "'separate the boys from the men".
At an oil price around $US80-90 a barrel, it did not make much difference whether Asia's LNG markets retained oil-linked pricing or moved to hub-based pricing as in the US, he said.
Dr Fesharaki said Cheniere's Sabine Pass LNG contract with Kogas was struck at 115 per cent of the Henry Hub price in the US, plus a margin of $US3 for liquefaction and $US3.50 for shipping via the Panama canal. He said Henry Hub gas prices would drift upwards from the current level of $US3.50 per mmbtu to $US5 per mmbtu, meaning US LNG would sell in Asia at about $US12 per mmbtu.
New US LNG export contracts would be struck at 135 per cent of the Henry Hub price plus a margin of $US7.50 per mmbtu which translated into an Asian price of $US14/mmbtu - which is comparable to the price for Australian gas.
"It is a mistake to worry about the potential supplies from the US being a threat to Australia," he said.
But lower oil prices would put margin pressure on Australia's LNG suppliers who sell into Asian oil-linked markets. Australia should aim to supply LNG to Asia at $US12/mmbtu - which he described as "the twelve dollar rule".
"The competition will be cost control," Dr Fesharaki said. "The cost explosion in Australia is ... quite remarkable". Referring to lasst week's $US3 billion cost blowout at the Exxon Mobil-led PNG LNG project, Dr Fesharaki said: "We thought PNG was immune, but it's not".
He predicted the US would export around 40-50 million tonnes per annum of LNG, ramping up from 2019-22.
Earlier, Santos chief executive David Knox told the conference he expected US gas companies would be allowed to export 30-40 million tonnes per annum of LNG, which would comprise less than 10 per cent of the global market.
Over the long term, Mr Knox said, US exports would be "at the margin".
Rio Tinto's general manager energy industry analysis, Stephen Wilson, said there was huge uncertainty about the outlook for gas. On one school of thought, the global market was on the verge of radical change, driven by the US shale gas revolution, which would push markets towards a single world gas price, no longer tied to the oil price.
Dr Fesharaki said Canadian LNG exports would be more expensive than US exports, and would take longer to develop.
Mozambique gas reserves were big, he said, but "it is not going to be cheap".
But Dr Fesharaki said there would be "a breather" before the next round of LNG projects were approved.