Queensland CSG LNG: issues for Australian gas users

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Queensland CSG LNG issues for Australian gas
users
EUAA Queensland Energy Forum 1 May 2009
Bruce Mountain Director
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Contents
Australian LNG developments
Issues for QLD gas users
Global LNG Developments
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The 173 mtpa global LNG market has turned down
Then
Global demand for LNG could outstrip supply by
up to 20 mtpa between 2008 and 2015 Don
Voelte, CERA Conference, Houston, May 2007 Over
the next few years demand will continue to grow
at about 8 to 10 per year - Kathleen
Eisbrenner, Shell Gas and Power International,
EIA Annual Conference, April 2008
Now
Asian spot LNG from 25/MMBtu to 3.8- 5/MMBtu
(AUD5.6/GJ to AUD7.4/GJ). Asian buyers have asked
producers to cancel or divert 12 cargoes
already - Fransisco Blanch, Merrill Lynch,
Platts, 13 April 2009
Demand for LNG in Asia will drop by 2 to 115
mtpa in 2009 demand in Japan will drop 8.5 from
69 mtpa to 63 mtpa - FACTS Global Energy,
March 2009, Platts

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Global demand is depressed but massive additional
LNG supply is scheduled to be commissioned in 2009
Additional capacity is equal to roughly half
Asian demand
Sources EnergyQuest, Andy Flower LNG Associates,
Platts, CME analysis
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Demand and supply meet at a price
Getting customers to sign up is a lot more
difficult that it would have been a year
ago - David Knox, Santos, Financial Review,
27 April 2009
Low energy prices will be around for some
time - Don Voelte, The Australian, 26 April
2009
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In Australia, 23 mtpa of conventional LNG is
somewhere between FEED and FID. Another 24 mtpa
is pre-FEED
Source EnergyQuest, Shell
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QLD CSG LNG proposals range between 16 mtpa and
39 mtpa in total
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Progress is being made in proving-up Queensland
CSG reserves
Source EnergyQuest
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Global LNG plant close to commissioning plus
possible Australian LNG, would expand global
capacity by 75
EnergyQuest data, CME analysis
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Bringing the pieces together establishes the
strategic context for LNG development in QLD
GFC lenders want more revenue certainty, lower
gearing and higher interest cover
Petronationalism ( Venezuela, Russia, OPEC
countries) country risk (e.g. Nigeria) confer
relative advantage for Australian LNG
Huge new supply from LNG plant close to completion
Potential massive pipeline expansion / new
development Russia to Europe, Russia to China
Lower LNG development costs expected, but not
seen yet
Rationalisation, hurry up and wait
Stagnant global LNG demand possible for a long
while
CPRS - potential relative disadvantage for LNG in
Australia
Some LNG expansion opportunities in other
countries Norway,Qatar, Brunei, UAE, Tobago,
Trinidad, Nigeria, Angola, Equatorial Guinea,
PNG, Indonesia, Malaysia, Russia
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Rationalisation of existing players is a major
threat to the domestic gas market
Clearly there are lots of drivers that makes a
merger sensible, but having said that, I dont
take it as guaranteed that it (a merger between
Santos and Origins LNG projects) will
happen - David Knox, Santos CEO, ABC Inside
Business, 26 April 2009
A Santos-Origin tie-up would lead to upstream
concentration in QLD gas comparable to that in WA
and Vic Not in Australian energy users
interests !!!
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Hurry up and wait may not be in domestic energy
users interests

• Well-capitalised gas majors (Connocco Phillips,
  Shell, BG, Petronas) have the financial strength
  to sit on reserves until the global LNG market
  resumes its 8-10 p.a. growth trajectory. This
  could reduce gas supply to the Australian market
  even if LNG development does not occur. Is this
  in the national interest ?
• Energy users need to promote an actively
  competitive and effectively regulated upstream
  market. CSG resource property rights need to be
  understood, monitored and enforced (no mean
  task).

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The GFC and collapse of global spot gas prices
could be a boon for Australian gas users, in time

• Net-back prices could be below current market
  prices
• With spot prices as low as 3.8/MMBtu and
  variable LNG production costs of 0.5/MMBtu -
  2/MMBtu, LNG producers would be rational to
  accept netback prices as low as 1.8/MMBtu
  (AUD2.7/GJ) below current QLD prices.
• Domestic gas sales have many attractive
  attributes
• Low counter-party credit risk, country risk,
  delivery risk and transaction costs
• No currency risk
• Income diversification
• Willingness to enter long-term contracts.

At the time of Concept Selection (before FEED)
domestic gas users should interact with project
developers via letters of interest to
declare/register their interest in additional
domestic gas supply. Domestic gas consumers need
to consider combinations of long and short term
contracts and the use of options and other
derivatives.
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Bruce Mountain bruce.mountain_at_carbonmarkets.com.a
u 61(0)3 9664 0680 0405 505 060 www.carbonmark
ets.com.au