Gas Blog

US LNG exports: Is the threat to Australian projects real?


Much has been written about the competitiveness of Australian LNG in global markets. Until a few months ago, this discussion centered on comparison of commercial terms of Australian contracts versus the threat of US hub-based pricing terms. However, as oil prices have plummeted by 50% since mid 2014, the debate has now become one about relative cost of supply between future LNG projects. On this basis, Australian projects do not compare favourably to the coming onslaught of US LNG exports into traditional LNG Asian markets. In fact, a recent Harvard study stated that ‘most Australian LNG schemes are unprofitable’ due to their costs in the range of US$3000/t as compared to the US projects which have costs in the US$700-$900/t.

What will be the impact of falling oil prices on US LNG projects such as Texas LNG?

The recent dramatic drop in global oil prices has taken the world by surprise. Though history is littered with periods when oil prices have overshot as well as ‘undershot’ price expectations, the current drop has been precipitous.  As of writing this article, oil prices have dropped around 50% and WTI is priced close to $50/bbl for the first time in over five years.

For consumers of LNG, especially those in Asia that buy most of their gas on oil-linked contracts, purchase price of LNG has dropped as oil prices have fallen. If their contracts have a ‘floor’ oil price, the impact on LNG prices may be dampened and not as dramatic. Coincidently, prices of coal, a substitute fuel for LNG in power generation, have also dropped over the past six months – though at a lesser extent than drop in LNG prices.  Together, these factors have also impacted the LNG spot market where prices have similarly dropped.  More affordable LNG will encourage more consumption for power generation, residential, commercial and transport use. Electricity demand is growing in many parts of Asia and even in places where demand is flat, cheaper LNG will encourage switching of fuels from dirty and politically sensitive sources such as coal and nuclear, to cleaner burning gas. 

The dominance of oil-linked LNG prices is coming to an end...kudos to BHP for recognizing this..and shame on others for not!

After many years of promoting the idea that oil-linked pricing for LNG contracts is a concept that has out-lived its usefulness - and its main reason for continued use is to protect the margins of the large LNG producers, I was pleased to see this article in the Australia Financial Review on October 15 2014.  Kudos to BHP for being the first large company (that I am aware of) that has accepted reality that the days of oil-linked prices should be limited and the future should be one of more transparent prices based on gas-on-gas economics - just like any other commodity!


BHP Billiton has split from Australian gas producers by pushing for a move away from oil-linked pricing, potentially threatening returns for one of Australia’s largest export earners. Japanese power companies have campaigned for several years to sever the link between LNG prices and oil prices because it was forcing them to pay more for gas than consumers in Australia and North America.

Conventional Wisdom in LNG Markets : Turning on its head in 2014

Much that Conventional Wisdom believed it knew about LNG seems to be turning on its head…what a crazy few months it has been!

First, we expected demand for LNG to grow unabated.  We were led to believe that supply was the key issue – unmet demand was always ready to take more LNG. This was especially supposed to be true for growing markets such as China and India. We now see Asian buyers, especially those with large future commitments, hustling to defer their future supply or seeking buyers in other markets, such as Europe, who would be willing to take over the contracts. Even mature buyers like Korea have been forced to reduce their imports due to oversupply, over commitments, and mild weather conditions. These occurrences may be short-term phenomenon, but it does indicate that LNG is, in fact, a commodity with both short and long term demand / supply characteristics and prices that should move accordingly. 

Local LNG ventures ignore reality of US exports

(text from Article published in Australian Financial Review Newspaper on 9 January 2014  By ANGELA MACDONALD-SMITH)

Texas LNG chief Vivek Chandra said Australian ventures could not ignore the damage that would be done to customer relationships if they don’t allow some adjustment for the massive changes in the LNG market.

Australia’s new liquefied natural gas ventures are ignoring the far-reaching impact that US exports will have in their key Asian markets, with some likely to struggle to make returns from their ultra-expensive investments, the Melbourne-based head of the US’s latest LNG export venture has warned.

The US unconventional gas experience...can this be repeated elsewhere?

Vivek Chandra presents his views on the US unconventional gas experience and whether the above ground and below ground factors are uniquely American or can they be repeated elsewhere.

View this presentation by clicking here.


A current view of LNG markets

Vivek Chandra, the author of this site, was recently interviewed by the Papua New Guinea TV station to give his views on global and regional LNG markets. Included in the discussion are impacts of US LNG exports, pricing trends, and future of long-term contracts. The full interview may be watched here