In the broader context of firm global LNG demand growth, Australian offshore gas mega-projects have been a significant feature of the offshore sector for the last decade, driving innovation (think Prelude FLNG) and yielding rapid production growth. There are also a few projects projected to push output even higher in the short term, though against this backdrop, there are some uncertainties in the longer term.

Steep Climb
Australia’s offshore gas output has grown rapidly in the last decade, rising from 3.29bn cfd in 2007 to 5.41bn cfd in 2013 and, in spite of the energy price and offshore downturn, increasing by a further 19% from 2013 to 2016, as large gas projects sanctioned before the downturn started to come onstream. A prominent example is the 2.25bn cfd Greater Gorgon LNG project, which achieved first gas in March 2016 (albeit after severe delays and cost overruns).

Last year also proved to be fruitful for Australia’s offshore gas output, with significant projects like Wheatstone (1.28bn cfd) and Persephone (0.77bn cfd) starting up. As a result, the country’s offshore gas output rose sharply by an estimated 38% y-o-y to 8.89bn cfd in 2017, consolidating Australia’s position as the fourth largest offshore gas producer globally. Indeed, Australia accounted for 26% of the net rise in offshore global natural gas production from 2014 to 2017.

Imminent Arrival
It seems likely that the steep upward trajectory of Australian offshore gas production could persist in the short term, given that the four gas projects currently under development off Australia contain 17.5tn cft of 2P gas reserves and are scheduled to start up by 2020. The most notable of these are the Ichthys ($34bn of CAPEX) Prelude FLNG ($12bn), which are scheduled to start up in 2018 and which account for 90% of Australian offshore gas reserves under development. Slippage remains a risk of course, but as things stand, 2.5bn cfd of offshore gas production is set to come onstream.

Pit Stop?
However, the medium term outlook looks less promising for Australian offshore gas production. Due to rampant cost inflation and then the energy price downturn, no LNG-driven offshore mega-projects have received FIDs in the country since 2012. Once the current slate of projects start up, the next such start-up is likely to be at least five years away, even if an FID is taken this year (not that likely). Instead, less costly LNG projects in countries like Mauritania, Qatar and the US seem poised to undercut Australia’s costly, deepwater and remote fields. Some 47 mtpa of US liquefaction capacity (fed by cheap shale gas) is under development and another 79 mtpa of capacity is in FEED, whereas Australian capacity is set to reach 87 mtpa by 2020. On the other hand, the long term fundamentals look more encouraging. The consensus view is that global gas demand will grow with a CAGR of c.1.5% to at least 2040, acting as a ‘bridging fuel’ to a lower carbon future. If this helps to induce a higher energy price environment, Australian gas projects could seem more attractive again.

So then, Australian offshore gas production looks set to grow rapidly in the short term, though there could be challenges in the medium term. But given the right conditions on the metaphorical road, in the longer term, it could drive onwards again.
Source: Clarkson Research Services Limited