Page 4 - GLNG Week 44

GLNG COMMENTARY GLNG
Australian LNG import project faces delays
Australian Industrial Energy’s Port Kembla LNG import plan is being hit by delays as it struggles to lock in buyers for its gas
PERFORMANCE
WHAT:
The Port Kembla LNG import project is facing new delays.
WHY:
The project’s backers are struggling to lock in buyers amid falling natural gas prices.
WHAT NEXT:
South-east Australia will likely need imported LNG in the longer run despite lacklustre buyer appetite currently.
AIE is stepping up efforts to sign up Origin Energy, Australia’s biggest gas retailer, in a bid to get the project built.
AUSTRALIAN Industrial Energy (AIE) is fac- ing further delays to its proposed LNG import project in Port Kembla, New South Wales, as it struggles to lock in buyers for its gas.
The project is one of five proposed Australian LNG terminals, being planned for the country’s south-east as the region grapples with looming domestic gas shortages even as exports of the fuel from other parts of Australia are booming.
AIE is backed by Japan’s JERA and Marubeni, as well as Australia’s Squadron Energy. Reuters reported this week that industry observers and sources familiar with the matter had said poten- tial buyers were holding off signing contracts after a drop in local gas prices. According to the sources, AIE is stepping up efforts to sign up Origin Energy, Australia’s biggest gas retailer, in a bid to get the project built. The longer talks with buyers go on, the more the proposed import ter- minal will fall behind its initial schedule of deliv- ering first gas in late 2020.
The development marks a further delay for the project after AIE applied in October to the New South Wales state government to modify the approval for the terminal to allow more fre- quent cargo arrivals during the winter months.
The application resulted in AIE having to push back a final investment decision (FID) on Port Kembla, which had previously been tar- geted for mid-2019. The consortium now has no target date for reaching FID, nor one for first gas deliveries.
Seeking buyers
As of June, AIE had lined up EnergyAustralia as its first customer and booked a floating storage and regasification unit (FSRU), as well as select- ing contractors to build wharf facilities for the AUD250mn ($173mn) project import terminal.
However, since then the consortium has failed to lock in deals with 12 industrial users that had expressed interest in buying gas from the terminal in 2018. Squadron’s CEO, Stuart Johnson, told Reuters that a few of those 12 had since dropped out altogether, though he added that they represented “a very small load”.
This comes as gas prices are falling in Aus- tralia, partly because certain LNG exporters are starting to divert more gas to the domestic market. Santos reported higher gas sales to the domestic market in the third quarter of 2019. Meanwhile, Australia Pacific LNG (APLNG)
struck a deal to supply 61 petajoules (1.6bn cubic metres) of gas to Origin over a two-year period starting in January 2020. And Royal Dutch Shell has also been involved in efforts to boost gas sup- ply to the domestic market.
These diversions of gas to the domestic mar- ket have dealt a blow to the proposed import ter- minals, as potential buyers opt to buy pipeline gas instead.
Under these circumstances, AIE continues to pursue talks with Origin, but one of the Reuters sources said that the latter wanted an equity stake in Port Kembla, with this proving to be a sticking point. Origin, however, denied that it was seek- ing to invest in the project, despite confirming that it had been in discussions with AIE, among others, about gas supply.
What next?
AIE had been hoping to launch Port Kembla ahead of rival import projects being developed in New South Wales, Victoria and South Australia. Currently, all these other projects are targeting start-up dates in 2021-23.
AGL Energy has also been hit by delays to its plan, as it undergoes an extended environmental review of its Crib Point import project in Victoria.
Squadron’s Johnson said the Port Kembla facility could be delivering gas within 16 months of an FID, suggesting the project is now likely to start up no earlier than 2021.
The start-up of these import terminals – assum- ing they come to fruition – will be timely, given that the mature Gippsland Basin, a major source of gas supply for south-east Australia, is expected to experience steeper decline rates from 2023.
Plans to import LNG even as Australia’s exports of the fuel rise have been criticised for their economics compared to building more domestic pipelines. And indeed exporters’ efforts to divert more gas to the domestic market appear to be gathering momentum, which could spur the development of new pipelines as well.
But despite increased availability of domes- tic gas and the resultant cooling demand from would-be buyers for gas from Port Kembla cur- rently, it appears that in the longer run the demand for imported gas will be there. This is backed up by warnings from the Australian Energy Market Operator’s (AEMO) annual gas outlook, which was published earlier this year and painted a bleaker picture than the previous year’s forecast.™
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w w w . N E W S B A S E . c o m Week 44 07•November•2019