Page 9 - NorthAmOil Week 16

NorthAmOil COMMENTARY NorthAmOil
in the Australia Pacific LNG (APLNG) project, estimates the facility’s breakeven costs at $29- 32 per barrel of oil equivalent (boe). Santos, the operator of the Gladstone LNG (GLNG) project, estimates its breakeven price at $29 per barrel, though this is across all of the company’s oper- ations and not the terminal alone. Nonetheless, the figures indicate potential challenges for Aus- tralian LNG producers.
While Qatar, another leading LNG exporter, is at an advantage to Australia because it is a low- er-cost producer, both countries primarily rely on oil-indexed contracts. This is also the case for Malaysia. Thus even lower-cost producers such as Qatar are set to suffer if crude prices continue to languish at multi-decade lows. As of April 16, Brent was trading below $28 per barrel, and there are expectations that prices will keep sinking as oil storage capacity around the world fills up.
Oil-indexed LNG prices are typically based on the average crude price over the previous 3-6 months, so there will be a lag before the current price starts to come into play for the LNG trade. Nonetheless, oil prices are not anticipated to make a rapid recovery, and this will add to the headwinds facing the LNG industry over the coming months.
What next?
There is currently little reason for optimism among LNG players. Boston Consulting Group
(BCG) estimated at the end of March that up to 8% of global LNG demand could be at risk in the short term, equating to more than 25mn tpy of the fuel. The management consulting firm antic- ipates that the low oil price environment could last another 1-2 years.
Meanwhile, another 24mn tpy of new lique- faction capacity is set to come online this year, adding to the oversupply and the downward pressure on spot prices for the fuel.
Citigroup recently projected that up to 10.3bn cubic metres per year of LNG could be shut in, or subject to extended maintenance. A Citigroup managing director, Anthony Yuen, estimated that the base case demand impact in the global LNG and European gas markets could reach 22 bcm, but under the bear case demand impact globally could reach 42 bcm.
One reason for cautious optimism is that China is gradually resuming activity, having been the first country to implement a major lockdown in response to coronavirus (COVID- 19). Five LNG cargoes are now reported to be on their way to China from the US, marking a milestone after LNG trade between the two countries was largely halted as a result of their trade war. As much of Europe remains in lock- down, there will be hopes that China can absorb more excess LNG. However, such hopes will be tempered by expectations that the country’s recovery will be slow.™
Five LNG cargoes
are now reported to be on their way to China from the US.
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