LNG producers squeezed
Source: AFR, 1 Dec 2014
Australia’s economic bonanza from liquefied natural gas is under threat as a collapse in oil prices undermines $200 billion of investment in export projects. The dive in Brent crude oil prices, which have reached fresh four-year lows, has caught the country’s new wave of LNG exporters in a pincer grip as they struggle with construction cost overruns that will crimp returns.
The British benchmark crude grade dipped to $US71.25 a barrel after the Organisation of Petroleum Exporting Countries (OPEC) refused to cut output on Thursday to bring an end to the supply glut that has slashed prices by more than a third this year.
The risk now, after the OPEC decision, is that oil prices will head further south, AMP Capital chief economist Shane Oliver says. “You can’t rule out oil prices going back to $US40 a barrel, the GFC low: OPEC is not going to meet again until June next year.”
Australia, on track to overtake Qatar as the world’s biggest exporter by 2018, was forecast to see LNG export revenues surge by 28 per cent a year to $60.4 billion within four years.
But those government forecasts assume higher oil prices than at present, with the forward curve signalling prices will only rise back above $US80 in July 2016.
Lower prices will eat into the profits of Australia’s high-cost LNG plants, whose sales contracts are priced against oil.
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