A BIT of disturbing news for Gladstone and Australia generally a week or two ago.
Since June, crude oil prices have fallen 25% to a four-year low of $US85 a barrel, something you've probably noticed at the fuel pump.
Why this fall is important for Australia is that it will impact on our increasingly LNG-reliant future export earnings.
The reason is that contract prices of all six under-construction LNG plants, three in Gladstone, are linked to crude oil prices.
Break-even for Australian LNG producers is reportedly about $US14 per million British thermal units (mmBtu).
Apparently that's about where the current crude oil price of $US85 per barrel puts us.
Should the barrel price fall further to $US80, then the price for LNG would fall to about $US12 per mmBtu, a loss-making level.
One oil company report I read indicated that because the US had gone headlong into shale oil and gas, the longer term price of LNG will settle on $US12, as the US builds exports to 100 million tonnes of LNG per year in the coming decade and even cheaper LNG from Russia heads into China.
Not a good forecast for us: when the projects started in Australia, the crude oil price was over $US100 per barrel which translates to $US15 per mmBtu - and the future looked rosy.
Recently, BHP sold out of the Browse project in WA and Arrow, under direction from its major shareholder Royal Dutch Shell, shelved its Curtis Island project.
The natural fit in developing gas projects is for oil companies to do the heavy lifting. But they're getting gun-shy.
Our hope for the virulent future export earner we had come to expect LNG to be will depend on Middle Eastern oil producers increasing crude oil prices by reducing production.
That would see fuel prices increase, higher inflation and eventually the threat of higher interest rates.
That's what economics is all about: cause and effect.
Bob Lamont is director of Corporate Accountants, situated at the Night Owl centre. He can be contacted on email@example.com.
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