The tightening comes as a number of LNG development projects move closer to coming on stream. Australia currently has $180 billionworth of new LNG projects currently underconstruction including Shell’s estimated $12 billion Prelude floating LNG project and Chevron’s two major Western Australian operations, Wheatstone and Gorgon.
In total,six LNG projects currently under construction are aiming for completion over the next two years and by 2020 ten facilities combined are expected to produce more than 85 MMt/a. Also in development is Woodside’s $40 billion Browse FLNG facility, which received the go-ahead in 2014, and in July this year confirmed it is entering the initial design phase for its facility.
No greenfield LNG projects have yet been announced in Australia since Shell deserted its Arrow LNG project in the Bowen and Surat Basins in January in the wake of the collapse in oil prices. Chris Graham, research director in Wood Mackenzie’s Asia Pacific primary fuel fundamentals team, says there is currently limited space and funds to enter Australia and Asia’s LNG market.
“The LNG market is entering into a period of considerable oversupply, which could keep prices and demand for new projects weak well into the next decade,” he said. “The opportunity for new Australian projects is even more limited as these are typically higher cost and don’t offer buyers the same level of flexibility that say a North American LNG project does.”
IS ASIA REALLY THE ENGINE FOR GROWTH?
The IEA expects global gas demand to reach an average growth rate of 2 per cent over the next five years, below the previous ten-year average of 2.3 per cent. While the lower oil price and the better affordability of gas imports is expected to provide some tailwinds for gas exporting nations in the short term, expanding further in the Asian region could become more difficult in the medium term.
“Although Asia has been regarded as an engine of future gas demand growth, the fuel has struggled to expand its share of the market in many parts of the region. This has raised questions over the viability of gas as an attractive strategic option across Asia,” the IEA report says. “In Japan, gas demand is set to fall. The only uncertainty is how fast, due to the fact that the scale and timing of the nuclear power comeback remain unknown.”
The international agency noted that a number of Asian nations are deliberately limiting gas usage in their power mix and have prioritised coal capacity expansions over those of gas. “Other countries have run their regasification infrastructure and gas-fired power plants well below their full potential despite facing substantial power shortages in some cases,” the report said.