LNG enjoys $48b bounce on China recovery

Angela Macdonald-SmithSenior resources writer

Jan 4, 2022 – 11.04am

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Australia has reaped lucrative gains from strong international energy prices and demand in 2021, with LNG export revenues surging by 25 per cent back close to $50 billion and China overtaking Japan as its largest customer.

Exports of liquefied natural gas from Australia reached a record of 80.9 million tonnes last year, beating the 77.6 million tonnes exported in pre-pandemic 2019 and likely topping rival giant exporter Qatar, according to analysis released on Tuesday by consultancy EnergyQuest.

But the firm warned that 2021 will likely turn out to be close to the peak of Australian LNG production amid declining supply from mature gas fields and a limited number of new projects.

Still, the strong 2021 performance was a boon amid supply chain disruptions that have caused problems for other exports worldwide and came on the back of robust growth in Chinese demand for natural gas as the economy recovered from the COVID-19 pandemic and the broader push across Asia to tackle air pollution in major cities.

“In the current world of supply chain and shipping challenges, the steady increase in Australian LNG exports is a significant achievement,” EnergyQuest CEO Graeme Bethune said.

The jump in exports means Australia is again likely to just pip Qatar as the world’s largest LNG exporter in 2021, the firm said, noting Qatar’s export capacity is 77 million tonnes a year, compared with 89 million tonnes a year in Australia’s 10 projects.

But that top position is under threat as Qatar plans a major expansion and the US ramps up shipments. The US Energy Information Administration is anticipating the US will overtake both Australia and Qatar in LNG exports in 2022.

“This will be an increasing challenge for Australian LNG producers wanting to contract new projects, or extend existing operations,” Dr Bethune said.

Woodside in December committed to building the $16.5 billion Scarborough LNG venture in Western Australia, although by the time it comes online in 2026 it will mostly replace declining output from other plants such as the Woodside-run North West Shelf plant near Karratha.

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Santos’ Darwin LNG is also facing downtime as the Bayu-Undan field runs out before the Barossa field off the north coast comes online. Bayu-Undan will potentially be exhausted in 2023, while Barossa comes online in 2025.

Meanwhile, Shell’s Prelude floating plant off the far north-west coast has been shut down by the offshore petroleum regulator after a power failure that triggered safety concerns, and has no date to restart.

“The best-case scenario would be that these two new projects [Scarborough and Barossa] bring Australian production back up to around current production levels: They are unlikely to take it up to new levels,” Dr Bethune said.

“Reaching new levels would require new sources of gas to turn around the decline in the North West Shelf, Australia’s largest LNG project.”

The North West Shelf venture was one of only two Australian LNG projects with lower production in 2021, suffering a 12 per cent drop. Inpex Corporation’s Ichthys project in Darwin had an 8.6 per cent drop.

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Dr Bethune said the Ichthys dip was only temporary but that North West Shelf faced a continuing decline due to ageing gas fields.

Shipping data suggest that China replaced Japan as Australia’s largest LNG market last year, shrugging off fears that gas trade between the two countries could be caught up in the tensions that have hit commodities including coal and barley.

Deliveries to China are estimated to have jumped 7.1 per cent from 2020 to 32 million tonnes, while shipments to Japan sank 9.3 per cent as long-term supply contracts held by the North West Shelf venture and Darwin LNG expired.

“Growing LNG sales to China reflect the rapid growth in Chinese natural gas demand as the economy has recovered from the pandemic and also the push to reduce air pollution in major cities,” Dr Bethune said.

Investment in traditional energy is far from dead globally, but it appears to be in the Australian share market.

— Graeme Bethune

EnergyQuest found that all Australian projects except Prelude delivered LNG cargoes to China, with Conoco Phillips/Origin Energy APLNG project and the Shell-operated QCLNG project – both in Queensland– the biggest suppliers.

It noted that the share prices of key Australian LNG exporters Woodside, Santos and Origin had failed to reflect the surge in LNG revenues, unlike those of their rivals in Europe and the US.

Woodside ended the year down 3.6 per cent, while Santos was flat. That compares with more than 30 per cent gains by Shell and Chevron, and a 69 per cent surge by US-based Cheniere.

“Investment in traditional energy is far from dead globally, but it appears to be in the Australian share market,” Dr Bethune said.