It’s been a long time coming, but 2018 will be the year Australia becomes a LNG export powerhouse. After years of delays and billions of dollars wasted from postponements, the final two projects of the initial six LNG projects, tapping into giant natural gas basins in the north and northwest waters off Australia are finally ready. Shell’s Prelude FLNG project, which was once planned to be the first FLNG project in the world until Petronas FLNG Satu and Golar LNG beat them to it – is now ‘materially ready’ to begin production, while Inpex’s Ichthys project is scheduled for a Q218 operational start-up after years of delays. The struggles with meeting timelines isn’t confined to Shell and Inpex; with the exception of Darwin LNG, all of the major Australia north-western projects have struggled with workforce issues and service operations. The slump in crude & LNG prices also thwarted the once best laid plans.
But finally it is done. Australia’s six major LNG projects have added some 41 mtpa of LNG to a global demand base that is still growing strongly. Between now and 2035, natural gas demand is expected to grow at an average of 2% per year; twice the rate of total global energy demand. Demand for LNG is set to increase at an average of 4% per year. This year China overtakes South Korea’s massive appetite for the super-cooled and clean(er) fuel. Japan still holds its number one importer for now. Asian demand grew by more than 17 million tonnes, beating industry predictions going into the year. That is nearly as much as the total volume that Indonesia, the world’s 5th largest exporter, produced in 2017. However there are challenges that come with high LNG consumption growth. Namely, infrastructure. In China, where demand for LNG is expected to double within the next six years, LNG tanks were full to the brim last winter, and it could take no more, resulting in the tanks closed for a few weeks. Other hungry markets like Pakistan and Bangladesh and Vietnam, lack import capacity, which takes time to build hence the idea of deploying floating storage and regasication units (FRSUs) there.
There are also worries, legitimate ones, that increased gas production from the rest of the world, including Russian piped gas and LNG, as well as America entering the fray with recent LNG exports to Europe and China, would spoil the party for the Australians. But it seems that the real victim is Canada. While Australia managed to enter the market in the nick of time – or so it seems – the promised ‘tsunami’ of LNG that would threaten markets in 2022/23, is less of a threat now. And that’s entirely because projects in Canada’s Pacific Northwest – which lagged behind by Australia’s by only a decade at most – did not make financial sense. Particularly given that environmental and indigenous population concerns are exponentially tougher to overcome in British Columbia. Petronas and Nexen have cancelled their projects, and are seemingly rallying behind Chevron’s Kitimat, which itself it facing problems both politically and economically. Meanwhile, American Gulf Coast LNG is nimbly developing along.
While Australia’s LNG appears to have made the grade, will Canada’s projects see the light of day? If you have read Shell’s LNG 2018 outlook report, it may appear so. “Following the wave of investment from 2011 to 2015, final investment decisions (FIDs) on LNG projects have nearly stopped. As LNG projects generally take more than four years to start production, new supply will not be ready until well into the next decade. FIDs on new LNG supply projects are required soon to avoid a supply shortage in the 2020’s.”
Up-coming courses on Gas and LNG in the region
LNG Fundamentals - http://bit.ly/2DqpkXM
Small Scale LNG Operations - http://bit.ly/2IlmXsZ
LNG Bunkering - http://bit.ly/2p91fzw
LNG Terminal Operations - http://bit.ly/2paJM9Q
LNG Markets, Pricing and Risk Management - http://bit.ly/2pf38f5
Gas & LNG Contract Negotiations - http://bit.ly/2DpJm4I
Gas Processing - http://bit.ly/2IowrDz
Advanced LNG Vessel Transfer Ship to Ship (STS) - http://bit.ly/2HPDTXd
Integrated Methods For Offshore LNG Transfer - http://bit.ly/2FUTZOJ
Something interesting to share?
Join NrgEdge and create your own NrgBuzz today
Headline crude prices for the week beginning 11 February 2019 – Brent: US$61/b; WTI: US$52/b
Headlines of the week
Midstream & Downstream
Global liquid fuels
Electricity, coal, renewables, and emissions
2018 was a year that started with crude prices at US$62/b and ended at US$46/b. In between those two points, prices had gently risen up to peak of US$80/b as the oil world worried about the impact of new American sanctions on Iran in September before crashing down in the last two months on a rising tide of American production. What did that mean for the financial health of the industry over the last quarter and last year?
Nothing negative, it appears. With the last of the financial results from supermajors released, the world’s largest oil firms reported strong profits for Q418 and blockbuster profits for the full year 2018. Despite the blip in prices, the efforts of the supermajors – along with the rest of the industry – to keep costs in check after being burnt by the 2015 crash has paid off.
ExxonMobil, for example, may have missed analyst expectations for 4Q18 revenue at US$71.9 billion, but reported a better-than-expected net profit of US$6 billion. The latter was down 28% y-o-y, but the Q417 figure included a one-off benefit related to then-implemented US tax reform. Full year net profit was even better – up 5.7% to US$20.8 billion as upstream production rose to 4.01 mmboe/d – allowing ExxonMobil to come close to reclaiming its title of the world’s most profitable oil company.
But for now, that title is still held by Shell, which managed to eclipse ExxonMobil with full year net profits of US$21.4 billion. That’s the best annual results for the Anglo-Dutch firm since 2014; product of the deep and painful cost-cutting measures implemented after. Shell’s gamble in purchasing the BG Group for US$53 billion – which sparked a spat of asset sales to pare down debt – has paid off, with contributions from LNG trading named as a strong contributor to financial performance. Shell’s upstream output for 2018 came in at 3.78 mmb/d and the company is also looking to follow in the footsteps of ExxonMobil, Chevron and BP in the Permian, where it admits its footprint is currently ‘a bit small’.
Shell’s fellow British firm BP also reported its highest profits since 2014, doubling its net profits for the full year 2018 on a 65% jump in 4Q18 profits. It completes a long recovery for the firm, which has struggled since the Deepwater Horizon disaster in 2010, allowing it to focus on the future – specifically US shale through the recent US$10.5 billion purchase of BHP’s Permian assets. Chevron, too, is focusing on onshore shale, as surging Permian output drove full year net profit up by 60.8% and 4Q18 net profit up by 19.9%. Chevron is also increasingly focusing on vertical integration again – to capture the full value of surging Texas crude by expanding its refining facilities in Texas, just as ExxonMobil is doing in Beaumont. French major Total’s figures may have been less impressive in percentage terms – but that it is coming from a higher 2017 base, when it outperformed its bigger supermajor cousins.
So, despite the year ending with crude prices in the doldrums, 2018 seems to be proof of Big Oil’s ability to better weather price downturns after years of discipline. Some of the control is loosening – major upstream investments have either been sanctioned or planned since 2018 – but there is still enough restraint left over to keep the oil industry in the black when trends turn sour.
Supermajor Net Profits for 4Q18 and 2018
- 4Q18 – Net profit US$6 billion (-28%);
- 2018 – Net profit US$20.8 (+5.7%)
- 4Q18 – Net profit US$5.69 billion (+32.3%);
- 2018 – Net profit US$21.4 billion (+36%)
- 4Q18 – Net profit US$3.73 billion (+19.9%);
- 2018 – Net profit US$14.8 billion (+60.8%)
- 4Q18 – Net profit US$3.48 billion (+65%);
- 2018 - Net profit US$12.7 billion (+105%)
- 4Q18 – Net profit US$3.88 billion (+16%);
- 2018 - Net profit US$13.6 billion (+28%)