Australian LNG shipments fall as industry hit by lower prices, write-downs

Australian LNG shipments fall industry hit lower prices write-downs EnergyQuest COVID-19
COVID-19 and its global economic ramifications have changed the direction of Australia’s gas market, according to a new report.

Australia’s liquefied natural gas (LNG) sector is starting to feel the energy pinch that began with lower oil prices.

Adelaide-based advisory firm EnergyQuest reports that falling energy prices are beginning to feed through into Australian LNG with extended maintenance, cargo deferrals, lower prices and asset write-downs.

Symptomatic was Woodside Petroleum’s (ASX: WPL) average realised price in the second quarter of 2020 of US$5 per one million British thermal units (MMBtu), down 38.3% from US$8.10/MMBtu realised in the first quarter of the year.

Australian LNG cargoes decrease or suffer delays

According to EnergyQuest’s latest monthly report, Australian LNG shipments fell by eight cargoes in June compared with May, although primarily due to scheduled maintenance at Gorgon.

But the more serious indicator is that in June there were still a large number of cargoes that had their deliveries delayed. EnergyQuest estimates that 33 Australian cargoes loaded during June had either anchored offshore or were steaming in circles slowly while awaiting final destination orders.

In May, the number of delayed cargoes totalled 41.

The Gladstone LNG producers in Queensland had a production surplus in June with total production being 8.6 petajoules greater than total LNG exports. This was up from a 7.8 PJ surplus in May.

How COVID-19 disrupted the gas market

EnergyQuest does paint a picture of how greatly the COVID-19 pandemic and the consequent worldwide economic shock have changed the gas market.

“Before the cataclysmic events of 2020, conditions in the east coast gas market had improved in 2019,” its June 2020 report stated.

“Demand [in 2019] grew in all the key sectors. Gas-fired power generation grew against the rise of renewables. Residential, industrial and commercial demand grew by 5%. Drilling in Queensland’s coal seam gas fields increased, increasing production,” EnergyQuest continued.

Indeed, Queensland met all of its demand, exporting more LNG, supplying the state and exporting to southern states. Supply was also augmented by first supplies from the Northern Territory. There was a modest increase in Cooper Basin production.

While facing a decline, Victorian offshore production was steady in 2019.

Now, Woodside and Shell (LON: RSDA) have announced significant impairments in relation to their LNG assets, due primarily to lower prices.

Woodside has written down the carrying value of its interests in Pluto, North West Shelf Gas, Wheatstone, Sunrise and Kitimat.

Meanwhile, Shell has written down the carrying value of its Surat Basin operation QGC and its Prelude floating LNG operation off Western Australia.

In June 2020, shipments to North Asia were lower than in the corresponding month in 2019 — 77 cargoes to China, Japan and South Korea this June compare with 77 in June 2019.

Meanwhile, EnergyQuest said electricity generation appears relatively unaffected by COVID-19, with east coast generation down only 1% in June year-on-year.