High construction costs warrant a breather in gas. Photo: Glenn Hunt
A BIG discovery in the Browse Basin off Western Australia boosted Santos shares on Monday, as energy experts warned the industry should ''take a breather'' before approving new Australian liquified natural gas projects.
Drilling at Santos' Crown-1 well, approximately 500 kilometres north of Broome, in a water depth of 440 metres, confirmed 62 metres of net gas ''pay'' between 4873 and 4998 metres deep and pressure data indicated high flow rates. Santos shares jumped 42¢ or 3.9 per cent to $11.30 on Monday.
Bell Potter energy analyst Johan Hedstrom said Santos' Crown discovery lay between Browse Basin acreage operated by Woodside and Inpex, and close to Karoon's Poseidon discovery.
''They say the reservoir looks good and should be able to flow at high rates. Let's hope so, that is really the key to success here.''
But Mr Hedstrom said it was ''very early days'' for Santos at Browse. ''Woodside has had large discoveries out there for 40 or 50 years and haven't been able to develop them. Karoon has had discoveries for the last 4-5 years and still can't develop them. It's a tough place.''
Earlier on Monday, Dr Fereidun Fesharaki, chairman of Singapore-based consultants FACTS Global Energy, told an Australian Institute of Energy conference in Sydney that a ''remarkable'' explosion in construction costs in Australia would cause gas companies to ''take a breather'' before approving a new round of LNG projects here, including BHP Billiton's Scarborough field and Woodside's proposed Browse gas hub - which received final state approvals yesterday, but is awaiting federal sign-off and a final investment decision.
Dr Fesharaki warned that Australia's LNG projects are more vulnerable to lower oil prices than to competition from the US, Canada or Mozambique. He forecast 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".
At such low oil prices, 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.
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.
He said Henry Hub gas prices would drift upwards from $US3.50 per mmbtu to $US5 per mmbtu, meaning US LNG would sell in Asia at about $US12 per mmbtu. Australia should aim to reduce costs to meet this price - which he described as ''the $12 rule''.
New US LNG export contracts would be struck at 135 per cent of the Henry Hub price plus a margin of $US7.50 a mmbtu, which translated into an Asian price of $US14/mmbtu - which is comparable to the price for Australian gas now.