Is there early pressure from the collapsing oil and gas price?

Is there early pressure from the collapsing oil and gas price?

In late 2013,  I wrote a number of blogs on Liquefied Natural Gas (LNG) concluding that unless the industry cost structure in Australia changes and productivity improves, there are unlikely to be any new offshore “green field” LNG projects, except for Floating LNG facilities.

In summary, the seven aforementioned projects, from this previous post, with a combined cost of around $190 billion, will take Australia’s LNG production from 30 million metric tonnes in 2015 to at least 80 million metric tonnes by 2018. This compares with Qatar’s 105 million metric tonnes per annum. And with the sharply declining iron-ore price over the past year, it is conceivable LNG will become Australia’s number one export commodity before the decade is out.

However, given the UK gas major BG Group has just announced a write-down of US$6.8 billion (A$8.8 billion) on its Australian assets, and the proposed US$24 billion Arrow LNG joint venture between Shell and Petro China is now cancelled, investors should be aware other projects could also see significant impairments.

The Queensland Curtis LNG project cost BG and partner China National Offshore Oil Corporation (CNOOC) US$20.4 billion to build and is the first worldwide to use gas extracted from coal seams as feedstock for LNG. Some US$4.1 billion of the impairment was due to BG cutting its assumptions for future oil and gas prices. The balance of the impairment is related to the US$5 billion sale of the project’s pipeline to APA Group, which was announced in December 2014.

Speculation is now mounting on whether the Santos (with Petronas, Total and Kogas) US$18.5 billion Gladstone Coal Seam Gas (CSG) to LNG venture and the Origin Energy (with Conoco Phillips and Sinopec) US$24.7 billion Australian Pacific CSG to LNG project will face similar issues regarding their carrying value.

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Chief Executive Officer of Montgomery Investment Management, David Buckland has over 30 years of industry experience. David is a deeply knowledgeable and highly experienced financial services executive. Prior to joining Montgomery in 2012, David was CEO and Executive Director of Hunter Hall for 11 years, as well as a Director at JP Morgan in Sydney and London for eight years.

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