THE FINALISATION of a deal for Russia to sell gas into China could see the end of Australia’s regional advantage, oil and gas industry analyst Graeme Bethune says.
The May 2014 Energy Quarterly report, released by EnergyQuest, – the consultancy of which Dr Bethune is principal – warns that the Australian Liquefied Natural Gas industry needs to rapidly trim costs if it is to have any chance of participating in a second round of new LNG developments.
The news came after Russia finalised lengthy negotiations for Gazprom to supply 38 billion cubic metres of pipeline gas to China at an estimated price of $US9.90 per million British thermal units (MMBtu).
“The average price of Australian LNG last quarter was US$12.95/MMBtu,” Dr Bethune said.
“Australia’s LNG sector should be mightily concerned as the project cost for Russia in its China supply deal is about the same cost as our own Gorgon project – but with a capability to supply 80% more gas.”
Dr Bethune said the contract had laid the basis for future Russian participation in further Pacific coast LNG projects, meaning that Australia could no longer rely on being “first in the queue”.
“Australia has to urgently cut costs and improve its LNG project execution, that is, learn to walk and chew gum at the same time,” he said.
EnergyQuest reported that the costs for an Australian greenfield LNG plant were running at around US$3,500 per tonne of capacity per annum, while the cost for ExxonMobil’s PNG LNG project was US$2,750/tpa.
“Petronas has quoted a total cost of US$2,500/tpa for its Canadian project. The cost of Gazprom’s China project is around US$2,000/tpa,” Dr Bethune said.
“In these circumstances, arguing against floating LNG developments in Australia, the cheapest LNG alternative, is irrelevant. It has to be cheapest development or nothing.
“And floating LNG isn’t an easy get-out-of-jail card either. Costs need to fall – right across the industry.”
The average price received for Australian LNG exports during the March quarter was $13.64 per gigajoule (GJ) in the March quarter, up 29.7% from a year earlier, while the falling Australian dollar saw the average price of North West Shelf cargoes increase by 15% to $14.04/GJ.