Australian LNG contracts under pressure from U.S., Russia supply

Australian LNG contracts under pressure from U.S., Russia supply

BEN SHARPLES

MELBOURNE, Australia (Bloomberg) -- Australian LNG producers may face pressure to renegotiate long-term sales contracts amid a flood of low-cost supply into Asia, according to former BHP Billiton executive Alberto Calderon.

Russia and the U.S. are developing projects with capacity to produce about 100 million metric tons a year that will determine the long-term LNG price for China, Calderon, a board member of Orica, said Sept. 9 at a Bloomberg seminar in Melbourne.

Cheniere Energy and Sempra Energy are among companies seeking to tap the U.S. shale boom and build LNG export projects to compete with Australian suppliers that are constructing seven developments at a cost of about $190 billion. Russia will be able to supply gas at about $11 per MMBtu, compared with $12.50 to $16 for Australian producers, Calderon said.

“What is clear is that Australia will become a major producer of LNG,” said Calderon. “The problem is that most Australian LNG production sits on the right hand side of the cost curve. Contracted tons will be under pressure.”

Australia is poised to surpass Qatar as the world’s biggest supplier of LNG. Exports are forecast to climb to 83 million tons a year by 2020, compared with 79 million tons for Qatar, Citigroup estimated in a July 28 note.

LNG for northeast Asia gained 6.8% to $12.50 per MMBtu during the week ended Sept. 1, according to Energy Intelligence Group’s World Gas Intelligence publication. Prices are near the lowest level since 2011.