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2015-12-22 19:50:00

AUSTRALIAN LNG HEDGING

AUSTRALIAN  LNG  HEDGING

Chevron and Origin Energy are moving to insulate their Australian liquefied natural gas businesses from plunging commodity prices as analysts warn a surge in LNG supply in 2016 will put further pressure on spot prices in Asia.

US oil major Chevron said on Tuesday it planned to sell up to 1m metric tonnes of LNG a year to China Huadian Green Energy from 2020, ensuring 80 per cent of gas from its Gorgon and Wheatstone projects is committed in long-term contracts.

In a separate announcement, Australia's Origin Energy said it was hedging its exposure to low oil prices by purchasing put options on oil for the 2017 financial year and forward-selling LNG cargoes at fixed prices.

"The risk for these big gas producers is what happens next year to LNG prices when you get a ramp-up in Australian and US gas supply," said Dale Koenders, energy analyst at Citi. "There is a chance LNG prices could decouple from oil prices and fall to levels around US$4 per million British thermal units (mmbtu)."

Australia is forecast to surpass Qatar to become the world's biggest exporter of LNG in the next few years following the completion of a $200bn pipeline of projects that include Gorgon, Wheatstone and a number of other LNG plants.

But the economics of the industry are challenging due to delays, cost overruns and tumbling gas prices in Asia, where LNG prices have historically been linked to oil prices.

LNG spot prices in Asia have halved to about US$7 per mmbtu over the past 12 months, reflecting the slide in global oil prices.

Origin, which is a shareholder in the Australia Pacific LNG project in Queensland, is committed to paying an extra A$1.8bn towards completion of the project.

Grant King, managing director, said buying the put options at a cost of A$82m meant Origin's additional exposure to the Queensland LNG project would be about A$200m if oil were to fall to US$20 a barrel in 2017.

But even a recovery in oil prices would not be guaranteed to lift LNG prices in Asia, according to Citi, which forecasts that supply will outstrip demand until 2023, keeping prices under pressure.

Mr Koenders said Chevron's decision to lock in a long-term sales contract suggests the company believes LNG prices have further to fall over the next few years.

Gorgon, which is based on a remote island off Australia's west coast, has cost US$54bn so far to build and is slated to begin production early next year. Its shareholders include Chevron with 47 per cent, and ExxonMobil and Shell with 25 per cent each. The remainder is held by three Japanese utilities.

Roy Krzywosinski, managing director of Chevron Australia, said the agreement with China Huadian, which is yet to be finalised, shows that its Australian gas projects were well-placed to meet growing demand in Asia.

But Asian demand for LNG has not met expectations. Energy consultancy Wood Mackenzie recently cut its China gas-demand forecast by almost a third to 290bn cubic metres by 2020, from 420bn cubic metres.

"Asia demand has definitely slowed and the outlook is not very positive in China, South Korea and Japan," said Chong Zhi Xin, Wood Mackenzie analyst.

ft.com

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More: 

AUSTRALIAN LNG DOWN 

AUSTRALIAN LNG UP 

TOO MUCH LNG 

AUSTRALIA BEGINS DRILLING 

CHEVRON WILL SELL AUSTRALIA

 

Tags: AUSTRALIA, LNG, USA, CHINA, GAS, CHEVRON, ORIGIN

Chronicle:

AUSTRALIAN  LNG  HEDGING
November, 20, 09:05:00

INDIA'S GAS WILL UP

REUTERS - India’s natural gas consumption is expected to rise to 70 billion cubic metres (bcm) by 2022 and 100 bcm by 2030, according to a government think tank and the Oxford Institute of Energy Studies, up from 50 bcm now. India burns just 7 percent of what top user the United States consumes in a year with about a quarter of India’s population.

AUSTRALIAN  LNG  HEDGING
November, 20, 09:00:00

NORWAY SELLS OIL & GAS

Norway, which relies on oil and gas for about a fifth of economic output, would be less vulnerable to declining crude prices without its fund investing in the industry, the central bank said Thursday. The divestment would mark the second major step in scrubbing the world’s biggest wealth fund of climate risk, after it sold most of its coal stocks.

AUSTRALIAN  LNG  HEDGING
November, 20, 08:55:00

OIL PRICES UP

WSJ - Light, sweet crude for December delivery rose $1.41, or 2.6%, to $56.55 a barrel on the New York Mercantile Exchange, snapping a three-session losing streak. Brent, the global benchmark, advanced $1.36, or 2.2%, to $62.72 a barrel.

AUSTRALIAN  LNG  HEDGING
November, 20, 08:50:00

U.S. RIGS UP 8 TO 915

U.S. Rig Count is up 327 rigs from last year's count of 588, with oil rigs up 267, gas rigs up 61, and miscellaneous rigs down 1 to 1. Canada Rig Count is up 24 rigs from last year's count of 184, with oil rigs up 9 and gas rigs up 15.

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