Gas and LNG Market Outlook: January 2017

Key points:

• Australia is significantly ramping up LNG production capacity, with new terminals in Western Australia, Queensland and the Northern territory having opened or under the advanced stages of construction. This will give Australia the world’s largest LNG production capacity – around 85 million tonnes per annum, over 20% of global capacity.  However, the ramp-up in production is progressing slower than expected, and some terminals have been running well below capacity amid an oversupplied global market.
• Global LNG prices have fallen significantly since mid-2014 on the back of lower oil prices, to which many LNG contracts are tied. While global dynamics have been somewhat more favourable of late, prices remain well below previous peaks and new supply from competitors will place further pressure on the market. We expect our Australian LNG export price indicator to finish 2017 at around AUD8/GJ.
• While prices are likely to stay subdued for some time, increased volume will see the value of exports increase significantly.  We forecast the annual value of Australian LNG exports to exceed AUD 27 billion in 2017 and approach AUD 35 billion in 2018, overtaking coal as Australia’s largest export after iron ore. LNG exports alone will contribute 0.6, 1.0 and 0.3 ppts to annual real GDP growth in 2016, 2017 and 2018 respectively, before flattening off at a high level.
• The exposure of eastern Australia to LNG export markets will have far reaching implications for domestic gas use. Wholesale prices are likely to increase significantly and some questions remain over availability of commercially recoverable gas from Queensland coal seam gas fields. Higher wholesale gas prices are likely to spill over into electricity markets by increasing fuel costs for peak load open cycle gas turbines. Higher gas prices are already flowing through to large domestic customers, with reports that contracts are being offered well in excess of current netback export parity prices. While wholesale gas prices generally constitute a smaller portion of residential customers’ bills, higher prices are likely to see some fuel substitution to electricity, especially for space heating.

For further details, please see the attached report.

• Gas and LNG Market Outlook: January 2017 (PDF, 940kb)