$240 billion in Australian LNG projects
The LNG glut that has plagued the industry in recent years may clear more quickly than anticipated, based on recent estimates.
Numerous massive LNG projects have come online recently, from several countries. Chief among these is Australia, where six multibillion projects have started up in the past five years. With another two planned for next year, the wave of Australian LNG will add a total of 65.8 MTPA of capacity, for a price of nearly $240 billion. The most recent of these projects is Chevron’s Wheatstone LNG, which came online in early October. The project will produce gas from offshore fields in western Australia, with an output of 8.9 MTPA. At $35 billion, Wheatstone is one of the most expensive Australian projects.
Sabine Pass is bigger than any single Aussie LNG project
The first, and currently only, U.S. LNG project, Cheniere’s Sabine Pass, is actually larger than any single Australian project. If all six trains are completed, Sabine Pass will have a capacity of 27 MTPA, nearly double the largest Australian facility, the massive $50 billion Gorgon LNG. According to Argus, Sabine pass will cost about $24 billion, meaning it is much cheaper per MTPA than Australian facilities. However, Australian project costs include the costs of developing the gas plays while the Sabine Pass cost is only for the facility.
LNG spot prices up 80% on Chinese demand
All these projects have flooded the market with LNG, a situation that buyers have attempted to take advantage of. According to recent shipping estimates, though, demand is catching up. Reuters reports Chinese LNG imports will reach 4 million tons in November, breaking the previous record of 3.7 million tons set last December.
Chinese demand will likely continue to grow, as it attempts to shift away from coal. Many residents of northern China have historically heated their homes using coal, but have been switched over to natural gas this year. The government will most likely continue this project, shifting demand from coal to gas.
Chinese demand has had an outsized effect on LNG prices, which have rose by 80% from the middle of the year. This is because, unlike other major consumers like Japan and South Korea, China commonly sources LNG from the spot market, not from a long term contract.
Analysts from Wood Mackenzie and Barclays forecast the oversupply will continue for only a few years, much shorter than previous forecasts predicting a glut well into the next decade. All agree, though, that demand will outgrow supply by the mid 2020s, boosted by consumption from China, India and Pakistan, among others. This growing demand will be a positive for the U.S., where numerous proposed LNG projects look to follow Cheniere, exporting American gas overseas.
Second U.S. LNG export plant—Cove Point
The latest news for the Cove Point, Maryland, LNG export plant ribbon cutting hasn’t changed since the project developer Dominion Energy (ticker: D) Q3 conference call and earnings release: “The Cove Point Liquefaction construction is effectively complete and the facility is going through its advanced-commissioning phase. The work continues on-time and on-budget and we expect to be in-service by the end of the year,” Dominion Chairman Thomas F. Farrell II said in a statement on Oct. 30.
