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Australia's LNG sector is well along on the journey to becoming the world's leading LNG exporter. 7 LNG projects are well into construction and product will be flowing soon. However, the US projects are coming up strong, with 3 projects fully through all public approvals and 3 more progressing quickly. The US LNG projects have considerable advantages (their tolling model, their pricing structure, etc). Australia is responding by getting its costs out, beginning with the mining sector, but coming now to the gas sector. The underlying assumptions about the project investments are being challenged on many fronts at once. If Australia can confront its cost, productivity and social license challenges, the country will be well placed for additional investments, both greenfield and brownfield.
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Breakfast Seminar
Australia’s LNG Sector
Podium Position At Risk!
Perth, October 2014
1 Australia’s LNG Sector – Podium Position At Risk!
This presentation sets out Deloitte’s continuing perspectives on the Australia’s export gas sector
• Global gas outlook is still positive
• America awakens
• 7 of planet’s biggest projects here
• Investment assumptions pressured
• Fix cost, productivity, social license
2 Australia’s LNG Sector – Podium Position At Risk!
About your presenters: Geoffrey Cann
• National Director, Oil and Gas, Brisbane
• Blog: www.geoffreycann.com
• Twitter: @geoffreycann
• Email: [email protected]
• Phone: +61 (7) 3308-7125
• Youtube: www.youtube.com/user/gsccann
• LinkedIn: au.linkedin.com/in/geoffcann
3 Australia’s LNG Sector – Podium Position At Risk!
About your presenters: Gary Doran
• Partner – Financial Advisory Services, Perth
• Email: [email protected]
• Phone: +61 (8) 9365-7080
• LinkedIn: https://www.linkedin.com/pub/gary-
doran/1/517/421
4 Australia’s LNG Sector – Podium Position At Risk!
Global LNG demand forecasted to be strong, enduring, distributed
0
2
4
6
8
10
12
14
2013 2014 2015 2016 2017 2018 2019 2020
Global LNG demand (bcf/d)
Japan Korea China Other Asia & Pacific Europe India Latin America
5 Australia’s LNG Sector – Podium Position At Risk!
Korea, Japan, Taiwan may be slowing, but other AsiaPac beckons
-2%
2%
19%
13%
7%
15%
19%
-5% 0% 5% 10% 15% 20% 25%
Japan
Korea
China
Other Asia & Pacific
Europe
India
Latin America
LNG demand growth forecast 2013-20 CAGR (%)
6 Australia’s LNG Sector – Podium Position At Risk!
Latter half of the decade belongs to North America
Global Liquefaction Capacity Growth Outlook 2008-20
Americans Are Coming!
Source: RBC Capital Markets, March 26th 2014
Project
Final
Investment
Decision (FID)
Offtake
Agreement(s)
DOE Export
Approval
(FTA)
DOE Export
Approval
(Non‐FTA)
FERC
Application
Submitted
FERC
Construction
Approval
Sabine Pass
(18mtpa, 2015‐17)
Freeport LNG
(13.2mtpa, 2018)
Lake Charles
(15mtpa, 2019)
Cove Point LNG
(5.3mtpa, 2017)
Cameron LNG
(12mtpa, 2018)
Jordan Cove:
(6mtpa, 2018‐19)
Oregon LNG
(9.6mtpa, 2019)
Corpus Christi
(13.5mtpa, 2018)
Lavaca Bay FLNG:
(4.4ttpa, 2018)
Incomplete Complete
8 Australia’s LNG Sector – Podium Position At Risk!
The US form guide to LNG
• Tolling model
• Multiple market exposures
• HH indexed pricing
• Brownfield capital cost
• Low operating cost
• Asian partners
• Deep supply base
• EPA rules, demand growth
• Mexican demand
• Weather
• Panama Canal pricing
• HH pricing volatility
• Regulatory environment
• Social license
• Contract time limits
Handicaps Strategies to Win
9 Australia’s LNG Sector – Podium Position At Risk!
Wither Australia’s Gas Sector?
10 Australia’s LNG Sector – Podium Position At Risk!
The projects are progressing – PNG into production, Arrow into FEED
11 Australia’s LNG Sector – Podium Position At Risk!
TROUGH PLANS
RAPID SOURCING &
DEEPER AUSTERITY
STRATEGIC SOURCING – investment required to realise and sustain
benefits
ENTERPRISE COST RESTRUCTURING / PRODUCTIVITY
IMPROVEMENT
$ v
alu
e
Sept 2013 Sept 2012
Cost reduction curve
program benefits
Cost reduction curve program benefits –
without investment/not sustained
The rebalancing of supply and demand is disrupting businesses and
creating opportunities – it still has some time to run
Tier 1 Mining companies
Tier 1 Mining Services companies
1st half
2013
2nd half
2013
Tier 2 Mining companies
Tier 2 Mining Services companies
Tier 1 Mining companies
Sept 2014
July 2014
12 Australia’s LNG Sector – Podium Position At Risk!
TROUGH PLANS
RAPID SOURCING &
DEEPER AUSTERITY
STRATEGIC SOURCING – investment required to realise and sustain
benefits
ENTERPRISE COST RESTRUCTURING / PRODUCTIVITY
IMPROVEMENT
$ v
alu
e
Sept 2013 Sept 2012
Cost reduction curve
program benefits
Cost reduction curve program benefits –
without investment/not sustained
The rebalancing of supply and demand is disrupting businesses and
creating opportunities – it still has some time to run
Tier 1 Mining companies
Tier 1 Mining Services companies
1st half
2013
2nd half
2013
Tier 2 Mining companies
Tier 2 Mining Services companies
Tier 1 Mining companies
Sept 2014
1st round of rate
reduction requests
July 2014
13 Australia’s LNG Sector – Podium Position At Risk!
TROUGH PLANS
RAPID SOURCING &
DEEPER AUSTERITY
STRATEGIC SOURCING – investment required to realise and sustain
benefits
ENTERPRISE COST RESTRUCTURING / PRODUCTIVITY
IMPROVEMENT
$ v
alu
e
Sept 2013 Sept 2012
Cost reduction curve
program benefits
Cost reduction curve program benefits –
without investment/not sustained
The rebalancing of supply and demand is disrupting businesses and
creating opportunities – it still has some time to run
Tier 1 Mining companies
Tier 1 Mining Services companies
1st half
2013
2nd half
2013
Tier 2 Mining companies
Tier 2 Mining Services companies
Tier 1 Mining companies
Sept 2014
1st round of rate
reduction requests 2nd round of rate
reduction requests
July 2014
14 Australia’s LNG Sector – Podium Position At Risk!
Our handicap is $1-$4/mcf in integrated supply costs
5.44 4.93 4.82 6.95
2.88
2.43 2.17 2.31
1.58
3.26
5.3
4.1 3.6 2.5
4.3
0
2
4
6
8
10
12
14
16
Eastern Australia (CSG) East Africa (Mozambique) West Coast Canada(Montney)
Western Australia(Conventional Offshore)
US Gulf Coast(Haynesville)
Integrated supply cost comparisons Estimated Capital Cost ranges
Liquefaction Processing & Transportation Upstream Cost
$10-12/mcf
$13-14/mcf $11-13/mcf
$11-13/mcf $10-12/mcf
15 Australia’s LNG Sector – Podium Position At Risk!
The GFC favoured Australia, but conditions are now Much More Competitive.
• Global Gas Demand
• Global Gas Supply
• Pricing
• Contract Structuring
• Emerging Resources
• Substitutes, Efficiencies
• Sovereign Risks
• Geologic Uncertainty
• Domestic Costs and Productivity
16 Australia’s LNG Sector – Podium Position At Risk!
As 61mt enter production, new services will be in demand in WA, QLD, NT
• Transport
• Shorebase
• Logistics
• Utilities
• Spares (land, floating)
• Maintenance
• Inspections, Repairs
• Employee Services
• Emergency
• Turn Arounds
• Equipment Usage
• Expert Services
• Sustaining Projects
17 Australia’s LNG Sector – Podium Position At Risk!
Australia earns the right to grow beyond 2016 when it gets a few things right
• Close out existing projects
• Become excellent in all operations
• Deliver high reliability
• Lower costs, fix productivity
• Work on social license
• Explore brownfield options
General information only
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