Lower oil and gas prices and the changing LNG landscape
Chris Graham A and Andrew McManus AWood Mackenzie.
The APPEA Journal 56(2) 586-586 https://doi.org/10.1071/AJ15092
Published: 2016
Abstract
The recent uptick in oil prices from multi-year lows reflects growing anticipation of a tightening of supply and demand fundamentals in global oil markets. Price recovery is expected to come through most notably in the second half of 2016, as the extended period of low oil prices takes its toll on global oil supply growth, and oil demand growth holds up as prices recover.
Rising oil prices will eventually flow through to higher realised LNG revenues in Australasia's long-term oil-linked term contracts. This would provide welcome respite to project economics, many of which have been hit hard by cost escalation and schedule overruns throughout the build phase, and compounded by the collapse in oil price just as these were starting up.
But even with a more favourable oil price environment, the outlook for LNG prices remains weak in the medium term. Lower Asian LNG demand growth and an impending wave of new LNG supply raises the potential for an over-supplied market. With spot prices low, Asian LNG contracts may come under pressure from over-contracted customers. Demands for volume rescheduling and price reductions could become more common.
With demand growth less than anticipated, and faced by competition from new entrants, buyers could look to place excess LNG into the international market. They risk competing for market with sellers, trying to secure customers for their own LNG while cutting costs through optimisation. These changes are forcing all companies to consider the benefits of a portfolio approach to their business. These dynamics, in light of low commodity prices, and the implications for the industry are considered in this extended abstract.
Chris Graham leads Wood Mackenzie’s integrated energy demand, pricing and markets research in Asia Pacific. He joined Wood Mackenzie in 2008, covering the Middle East upstream sector before relocating to Perth to take-over as Head of Australasia oil and gas research until 2014. Now based in Singapore, Chris' regional teams analyse the complexities of supply and demand fundamentals, both at a regional and global level, to forecast short, medium, and long-term commodity prices across the energy and mining sectors. Prior to Wood Mackenzie, Chris worked for KPMG in Madrid (Spain), supporting the audit and risk advisory departments in engagements across a range of industrial sectors. Chris holds a MSc with distinction in environmental economics from the University of Edinburgh, and a MA (Hons) in Hispanic studies from Glasgow University (Scotland). Chris is also a board member of Women in Mining and Resources (WIMAR) in Singapore, which works to increase opportunities for women to develop and progress their careers, and address the gender balance within the resource industries. |
Andrew McManus has more than 25 years of experience that covers the full value chain of the energy industry. Andrew joined Wood Mackenzie in 2005 and is responsible for consulting projects in the Australasia region, with a particular emphasis on gas monetisation, and LNG and CSG developments. Presently he is Vice President – Energy Consulting Australasia. Prior to joining Wood Mackenzie, Andrew was Gas Portfolio Manager for TRUenergy (formerly TXU Australia). Andrew was responsible for developing and implementing the gas supply strategy, negotiating gas supply contracts, and managing operational requirements of gas supply for industrial and retail markets, as well as gas-fired generation. Andrew gained 10 years of experience working as a geophysicist with BP, evaluating resources in Australia, Papua New Guinea, Algeria and the UK. He has an intimate understanding of the Australian petroleum industry and has worked on projects associated with the North West Shelf Project, deepwater exploration and petroleum resource assessments. Andrew holds a MSc in petroleum geology and geophysics from the National Centre of Petroleum Geology and Geophysics (University of Adelaide), a BSc (Hons) from the University of Sydney, and a Graduate Diploma of Applied Finance and Investment (ASIA). |
