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Australia: LNG sales take $12.6b hit despite record exports

Surging renewable energy helped lift Australia’s LNG exports to a record last year as increased use of wind and solar power freed up gas that would otherwise be used in power generation, according to consultancy EnergyQuest.

But the “win-win” for the country’s economy and its environment came as revenues from LNG exports slumped by an estimated $12.6 billion last year after a roller-coaster period in prices that has become even more dramatic in early 2021.

LNG export revenues in 2020 were probably about $36.1 billion, down more than a third from $48.7 billion in 2019, according to EnergyQuest.

Shipments reached a record 78 million tonnes, up by half a million tonnes from 2019, and could rise again this year with the restart of Shell’s floating Prelude plant and once repairs are completed at Chevron’s Gorgon in Western Australia.

The figures suggest Australia was again the world’s biggest exporter of LNG in 2020, given rival Qatar has a nameplate capacity of 77 million tonnes but does not disclose actual volumes.

Queensland’s three LNG ventures shipped record levels of gas in December, amounting to 33 cargoes, exceeding the total rated capacity of the plants for a second straight month.

EnergyQuest said the rise of renewable energy was one of the reasons that exports from Gladstone had been maintained at such strong levels. Gas use in electricity generation dropped by 39 petajoules in 2020 from 2019.

“Replacing east coast gas with renewables to free up gas to export to China to replace coal is a win-win both environmentally and economically,” the firm said.

It described the action in global gas prices as “chaos” after crude oil slumped last March, bringing contract LNG prices down in its wake. Spot LNG prices fell to a record low $US1.83 per million British thermal units (MMBTU) on oversupply and soft demand, but had surged more than eightfold by late December to a six-year high of $US15.10/MMBTU.

This month, Asian spot prices continued to rocket, touching a record of $US32.49/MMBTU last week, amid a brutally cold winter in north Asia, production outages and bottlenecks in the Panama Canal. One cargo for immediate delivery was reportedly sold at $US37 as some importers were badly caught out by the squeeze.

‘False sense of security’

“The last few winters have been warmer than expected and with spot prices low buyers were probably lulled into a false sense of security,” EnergyQuest said. It noted that prices now appeared to have peaked, dropping last Friday to $US26.99/MMBTU for LNG to be delivered in February and late March cargoes were down at $US7.50/MMBTU.

EnergyQuest said the wild price swings showed spot LNG prices were not suitable as a comparison for east coast domestic gas prices. LNG “netback” prices – the domestic equivalent of the price after subtracting liquefaction and shipping costs – have soared from $2.29 a gigajoule in July to $19.62 in the latest data released by the competition watchdog on Monday.

The forward curve points to netback prices receding to just under $9 in March, according to the Australian Competition and Consumer Commission, but remaining above $6.60/GJ even in the typically weaker Northern summer months.

EnergyQuest said that using real prices for LNG exported from Queensland would provide a “far more realistic benchmark” for east coast prices, indicating a netback at the Queensland hub of Wallumbilla of $7.14/GJ last September quarter, rather than $2.60/GJ which is below the cost of production.

Forty-four Australian LNG cargoes were delivered to China in December, up by six compared with the preceding month as well as December 2019, signalling no impact on LNG trade from the chilly economics relations between the countries.

China remained by far the biggest buyer of Queensland LNG in December, at 1.4 million tonnes of its total Australian imports of 3 million tonnes, making it the biggest importer of Australian gas that month, overtaking Japan.

China’s demand for LNG has been supported by its coldest winter in decades and a faster than expected recovery from the COVID-19 pandemic.
Source: Australian Financial Review

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