Australian firms to reap windfall from LNG Asia boom

LNG prices in Asia have soared to an all-time record, with a cold snap sparking a battle among the world’s biggest gas buyers to secure supplies.

A cargo of Australian LNG from the $US54bn ($70bn) Gorgon plant in Western Australia sold for $US37 per million British thermal units to a Japanese utility at the weekend.

LNG prices in Asia have soared to an all-time record, with a cold snap sparking a battle among the world’s biggest gas buyers to secure supplies, potentially delivering a windfall for Australian gas producers.

A cargo of Australian LNG from the $US54bn ($70bn) Gorgon plant in Western Australia sold for $US37 per million British thermal units to a Japanese utility at the weekend, according to an industry source.

That represents a near 20-fold jump from just over six months ago when the benchmark for LNG spot prices in North Asia, JKM, was trading at $US2 per mbtu in June.

Freezing weather in Asia among the top LNG importers — China, Japan and South Korea — has seen utilities race to grab enough gas for delivery over the next few weeks as inventories dwindle, hobbling the ability of some gas power plants to run at ­capacity.

The Asian JKM index hit $US20.70 mbtu on Friday, eclipsing a 2014 record and more than 10 times the prices recorded just six months earlier.

“That’s the biggest rally in LNG industry history and biggest commodity rally over the last year,” Credit Suisse analyst Saul Kavonic tweeted.

Shell has also struck a sweet moment to resume production from its troubled $US12bn Prelude floating LNG plant after battling technical problems that have kept it offline since February 2020.

The energy giant confirmed supplies have restarted after a prolonged outage.

“LNG cargoes have resumed from Shell’s Prelude FLNG facility. Prelude is a multi-decade project, and our focus remains on delivering sustained performance over the long term,” a Shell spokesman said.

Prelude was touted by Shell as the first of a revolutionary line of projects to unlock stranded gas resources previously considered too remote to support development of conventional land-based LNG plants. The floating LNG vessel started delivering supplies from the Prelude gas field, 475km north-northeast of Broome, in June 2019.

Shell’s Prelude floating facility. Picture: Royal Dutch Shell Australia/Reuters

However, the plant had yet to get anywhere near its full 3.6 million tonne-a-year capacity when a number of safety incidents unfolded in December and January which were probed by the National Offshore Petroleum Safety and Environmental Management Authority.

Just two cargoes were shipped in January 2020 before operations were suspended due to the failure of back-up diesel power generation, EnergyQuest said.

Shell took a $US1.3bn pre-tax writedown in the third quarter on Prelude, further hiking concerns over the long-term fortunes for the plant.

The price boom may also hand Australia, the world’s biggest LNG producer, a revenue bounty should prices remain elevated for the duration of the Asian winter.

Australia’s LNG income was estimated at $2.9bn for November, down over a third from six months ago, but showing a recovery after a September low of $1.8bn and October’s $2.2bn and likely to substantially rise given price momentum so far in January.

Japan’s power price for Monday delivery jumped to 117 yen per kilowatt hour, marking the first time the daily average has ever been higher than 100 yen, according to Bloomberg.

The huge rise in LNG spot prices may also raise issues for Australia’s manufacturers who have been campaigning for an LNG netback price.