Chevron – Declining gas a bigger threat to LNG exports than China
“Nonetheless, tensions with Australia and perceived higher sovereign risk are likely to be encouraging Chinese LNG buyers to look elsewhere.”
The comments come amid mounting worries that the souring in relations between Australia and China that have already hit multiple commodities is spilling over into LNG, after unconfirmed reports that at least two of China’s smaller LNG importers had been told by authorities to avoid buying extra cargoes from Australia.
Australia is China’s biggest source of LNG, with export trade last year reaching $13 billion.
Threats around the edges
But Australian LNG shipments to China are still on the rise, with the 12-month moving average reaching a record in April, EnergyQuest data show. Smoothing out seasonal fluctuations, deliveries to China have been averaging about 35 cargoes a month since 2019.
But EnergyQuest pointed to threats around the edges from China, where many companies are reported to be in talks with Qatar about possibly participating in that country’s mega expansion of LNG.
Moves to diversify beyond Australia for LNG could pick up pace, depending on the outcome of the government’s review of Landbridge’s 99-year lease of the Port of Darwin, it signalled.
“Overall, there do not appear to be major risks to Chinese exports, short of explicitly breaching contracts and this sounds unlikely unless Australia itself breaches a Chinese contract, such as the Darwin Port lease,” the firm said.
“Even without the current political tensions it would make sense for China, as well as Australia, to diversify their LNG trade.”
Meanwhile, LNG spot prices in north Asia are on the rise again, topping $US10 per million British thermal units on May 10 for deliveries in June, the highest level since 2014 for this time of year, EnergyQuest noted. Prices hit a record low of less than $US2/MMBTU in the June quarter of 2020.
Woodside told investors in November that unused capacity would emerge at the North West Shelf as mature fields declined and before replacement fields came online. Credit Suisse has said it is assuming a drop in output at the country’s oldest LNG plant of up to 15 per cent this year.
Woodside has flagged that in the absence of gas from third parties, it would probably close down one of the smaller and older of the five production units at the North West Shelf venture’s plant in Karratha in 2024.