Australian LNG exports to Europe likely to increase

Australian exporters could secure new LNG export contracts for existing and new projects to Europe over the next few years as the region seeks to avoid a long-term gas crunch.

LNG prices have soared in recent weeks, hitting a six-month high recently, as importers scramble to source new supplies to reduce their dependence on Russia.

While analysts see little scope to immediately expand sales to Europe, which is at most risk of soaring prices, Australian shipments could climb over the course of the next few years.

“With the European crisis, the demand for Australian LNG is likely now to be even greater, which is an opportunity to win more contracts for current new projects. Woodside should be able to contract more of Scarborough and Santos more of Barossa,” consultancy EnergyQuest says in a report published on Tuesday.

“The second priority would be to keep existing plants full, particularly the North West Shelf in the face of its looming decline.”

New demand for Australian supplies comes as work is under way on two major projects.

Biggest fossil fuel development in a decade

Woodside late last year gave the go-ahead to the $16.4 billion Scarborough project, which is set to be the biggest fossil fuel development in Australia for almost a decade and has been the subject of growing environmental opposition.

The Scarborough project – holding about 11 trillion cubic feet of gas – would lock in another 30 years of LNG exports starting in 2026, when shipments are due to start from the expanded Pluto site near Karratha.

Santos last year gave the go-ahead for the $US3.6 billion ($4.7 billion) development of the Barossa gas field off Australia’s northern coast.

The project, which will supply 20 more years of gas for the 3.7 million tonnes-a-year Darwin LNG project, is Santos’ first major growth investment since the oil price crash a year ago that brought major development projects to a halt.

The LNG boom has also stirred speculation of old projects being revived.

Woodside’s Browse venture off the Kimberley coast and its Sunrise project in Timor-Leste could be dusted off and reconsidered, as well as an expansion of Santos’ Darwin LNG plant. Credit Suisse analyst Saul Kavonic said.

Sunrise has been stalled for years amid negotiations between Australia and Timor-Leste on development terms, and disagreement on how the resource would be developed, major obstacles that would have to be overcome.

Asian demand

While Europe is expected to be in the market for additional LNG supplies, EnergyQuest said the gas crunch bought about by sidelining Russia would be keenly felt in Japan.

“Not only is Russia the biggest gas supplier to Europe, it is now the world’s fourth largest LNG producer, with more than half Russian LNG going to Asia, where Japan is the biggest Russian customer. Japan is also a significant investor in Russian LNG projects,” EnergyQuest said.

The dilemma could lead to Japan being required to outbid Europe for Australian supplies, forcing up prices.

The rise in international prices has stoked concern about the impact on local prices. So far, spot prices on the east coast have remained steady at about $10 a gigajoule, in contrast to prices in Europe and Asia, which have rallied to about $35 a gigajoule.

Australian Competition and Consumer Commission chairman Rod Sims last month said he expected prices to remain steady as exporters maintain domestic supplies to prevent any government intervention that could hamper more lucrative exports.

“They don’t want anything to interfere with their ability to export, so I think they’ll tread very carefully,” Mr Sims said.


Tags: Australia, Europe, Exports, LNG, Russia
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