At APPEA 2013, Wood Mackenzie’s head of Australia Upstream Consulting, Andrew McManus, warned Australia faces a hiatus in LNG projects as the focus of buyers has turned to the U.S., where he said customers can find potentially lower-cost, more flexible LNG and the opportunity to diversify supply portfolios.
McManus said, “There are five key issues driving buyer motivations in the current market: supply portfolio diversification, exposure to Henry Hub pricing, greater flexibility in contract terms, projects that can be sanctioned quickly and access to upstream equity. For these reasons, U.S. supply has become the most favorable near-term option that is for deals where supply is expected to start pre-2020.”
He said growth in LNG demand offers room for other supply regions, including East Africa, Canada and Russia, in addition to Australia. Opportunities for new Australian projects will be limited, and the high-cost environment must be controlled for these projects to be competitive with emerging supply regions. A strong focus on greater supply diversity means that any new Australian capacity is likely to be smaller than the large greenfield developments seen in recent years.
“Australia has had a remarkable few years of LNG build. It has gone from contributing 7% of global LNG supply in 2000 to an expected 25% of the global market by 2018,” McManus said. “Buyers have increased their exposure to Australia during the period, as Australia has been the only material supply option available. It is inevitable that markets like China and Japan, which are major Australian LNG off-takers, may now seek to diversify their supply options.”