Inpex expects LNG glut to continue
Japan’s largest oil company, Inpex, says a slump in Asian gas prices may persist amid a global supply glut.
Japan’s largest oil company, Inpex, says a slump in Asian gas prices may persist as a global supply glut and mixed economic sentiment dampen near-term prospects for Australia’s LNG exporters.
The region’s benchmark LNG index is hovering near its lowest point in a decade as a flood of new production combined with tepid consumption due to mild weather has seen spot prices slashed from $US11 per million British thermal units late last year to just $US4/MMBtu currently.
That presents a headache for a raft of Australian producers including Inpex itself, which runs the recently opened $US45 billion ($66bn) Ichthys facility in Darwin and owns a stake in Shell’s recently commissioned Prelude floating project off Australia’s northwest coast.
“Everyone thinks that demand in Asia may be a little bit decreased or only increase very slowly,” Inpex chief executive Takayuki Ueda said.
A slowdown in global economic growth along with a bump in new supplies from Australia and the US has led to a mixed picture for major LNG producers.
While many suppliers still sell the bulk of their fuel on contract terms, which are based on crude oil prices, buyers in Asia locked into those deals are increasingly looking to renegotiate given they are paying tariffs twice the level of rock-bottom spot prices.
The pressures and economic sentiment “of course will affect the LNG market as well as the oil market therefore the current price of oil and LNG seems to be a very low level”, Mr Ueda said.
Still, Inpex remains bullish on the mid-term outlook and content with cashflows from the Ichthys project with about 70 per cent of its volumes to be supplied to Japanese customers.
“Fundamentally Asia will grow. Asian countries will make a lot of economic growth and will need a lot of energy. Demand is fundamentally growing fast,” Mr Ueda added.
Global energy major Chevron underlined the sluggish price environment for LNG after receiving a lower price for excess LNG sold on the spot market from its Gorgon and Wheatstone projects in Western Australia.
Inpex also defended the high price of constructing Ichthys, noting delays and a cost blowout from the original $US34bn in 2012 to the final figure of $US45bn had also hit rival LNG projects in both Western Australia and Queensland.
“There have been some schedule delays and costs were also up. But that is very much common and popular for those very large and complex projects,” Mr Ueda said. “So at this moment the Ichthys project has enough cash coming through so we are very much happy with the current situation of each project.”
The energy producer is considering tripling the capacity of its existing two-train Ichthys project along with the onshore development of acreage it holds in the Northern Territory’s prospective Beetaloo Basin, which has emerged as a major untapped resource that could help plug east coast shortfalls.
Gas from the Beetaloo could be supplied to the east coast market by pipeline.