AUSTRALIA is looking to sanction an unrealistic number of liquefied natural gas projects, according to an LNG report card by Macquarie analysts that predicts only a fraction of proposed projects will go ahead.
The Macquarie analysis is bullish on medium-term LNG demand, forecasting it to double from current levels to 372 million tonnes per annum (mtpa) by 2020. But it sees that demand falling away after 2020, potentially threatening Australian LNG projects as development bottlenecks pose a risk to projects being delivered on time and customers look to cheaper LNG suppliers.
Macquarie analyst Adrian Wood said the Papua New Guinea-focused Oil Search was the best investment tip of the proposed LNG producers because of its superior exposure to long-term oil prices and lower risk profile.
Mr Wood said he believed the market was overlooking the ''unmatched size and quality'' of Origin Energy's coal seam gas reserves destined for its Australia Pacific LNG project in Gladstone.The risks associated with Santos's neighbouring project were expected to grow over the next year, but its prime position on Curtis Island was ''likely to throw up profitable opportunities in the future''. Woodside's 20 mtpa net LNG production target by 2020 also looked like ''a tall order'', Mr Wood said, as it implied that Woodside's LNG facilities would account for 12 per cent of the global market.
''This is roughly equivalent to the combined operated oil production of ExxonMobil, Chevron, BP, Total and ConocoPhillips,'' he said. ''Deteriorating market conditions are likely to take the heaviest toll on remote, green-field projects such as Browse.''
The report found that Australia would struggle to export more than 64 mtpa of LNG by 2020 or 96 mtpa by 2030 because of tight timetables and development hurdles. The North West Shelf and Darwin LNG projects already contain 20 mtpa, with Woodside's Pluto and Chevron's Gorgon projects adding 20 mtpa by 2020. Of the remaining 24 mtpa, 17 mtpa has been tentatively secured under heads of agreement with Woodside's Wheatstone project, BG's Queensland Curtis LNG project and Santos's Gladstone LNG project.
''Of the remaining 7-10 mtpa of demand available for the new Australian LNG projects to be brought on-stream by 2020, we see proposed capacity of 135 mtpa. As a result there will be a weeding-out process with rival projects jostling for positions in the marketing and development queues, with several projects likely to be forced to produce significant qualities for the spot market,'' the report found.
Mr Wood believes the market opportunity for LNG is being overstated and the graph often used by LNG sellers showing rising uncontracted demand growing over time is unrealistic. ''We argue that an analysis of uncontracted demand … fails to capture probable contract extensions, existing heads of agreement and the expected growth in LNG spot markets,'' he said.
