The biggest risk facing Australian LNG exporters is not trade threats from China, rather its the possibility of not having enough gas, a new report has found.
The biggest risk facing Australia's liquefied natural gas (LNG) exporters is not trade threats from China, rather its the possibility of not having sufficient gas feeding into their production facilities, a new report has found.
Consulting group EnergyQuest has analysed the LNG industry following a recent report that at least two of China’s smaller LNG importers have been told to avoid buying new cargoes from Australia.
The Bloomberg report said the Chinese importers have received verbal orders from government officials to avoid purchasing additional LNG from Australia for delivery over the next year.
It added that the larger state-owned importers that carry out almost 90 per cent of purchases have not received any guidance.
EnergyQuest said this was not surprising, as the big importers - CNOOC, Sinopec and PetroChina - have significant long-term contracts and equity investments in Australian LNG projects.
As such, any attempt to limit Australian cargoes would require breaking contracts and harm the equity interests of the Chinese state-owned companies.
EnergyQuest said LNG exports to China continue to be remarkably stable, saying they have averaged 35 cargoes per month since 2019.
“Australian deliveries to China have actually been growing this year with 29 cargoes in February, 37 in March and 43 in April,” EnergyQuest said.
It added that China buys much more LNG from Australia than is accounted for by the disclosed long-term contracts with the major state-owned companies.
Total disclosed LNG contracts with the three major Chinese buyers are 19.1 Mtpa but in 2020 China bought 29.1 Mt of Australian LNG.
The remaining 10 Mtpa comprises volumes purchased from the portfolios of companies producing LNG in Australia and spot purchases.
This would include the likes of BP, Chevron, Petronas, Origin, Shell and Total.
“Overall, there do not appear to be major risks to Chinese exports, short of explicitly breaching contracts and this sounds unlikely unless Australia itself breaches a Chinese contract, such as the Darwin Port lease,” EnergyQuest concluded.
“The biggest risk to Australian LNG exports is not having enough gas.”
The big producers facing this risk include the Woodside Petroleum-operated North West Shelf venture, which converts natural gas from offshore fields into liquefied natural gas (LNG) for export.
Woodside is focused on its Scarborough gas development, which is designed to underpin the construction of a second LNG train at its Pluto facility.
New gas supplies for the NWS venture’s Karratha gas plant are most likely to come from the Browse development, located off the Kimberley coast.
Both projects are large and expensive and face opposition from environmental groups.
EnergyQuest also cited a recent Platts report that the NWS venture has asked Japanese utilities to defer some LNG cargoes, due to water ingress into one of the producing wells.
“Only eight cargoes are expected to be affected but this is a reminder of the maturity of the NWS, which is soon to move into late-life production decline,” EnergyQuest said.
It added that some of the big east coast LNG producers also face uncertainty over their future gas supplies.
The Santos-operated Darwin LNG facility has recently tackled this issue by committing to develop the Barossa gas field, as a replacement for the Bayu-Undan field.
EnergyQuest noted that over the last year, technical problems with Chevron’s Gorgon LNG plant have had a greater impact on exports than anything to do with geopolitics.
Australia’s LNG exports totalled 78.3 Mt in 2020, up on 77.0 Mt the year before.
This made Australia the world’s largest LNG exporter, just ahead of Qatar.