Speculation about LNG oversupply

THE growing demand for energy and predictions of oversupply of liquefied natural gas (LNG) have some analysts saying that some LNG projects in Australia may be scrapped.

The speculation has led to reports that Origin and joint venture partner ConocoPhillips (APLNG), who are yet to secure an offtake deal for their Curtis Island project, may back out or sell their investment.

Gladstone RBS Morgans manager Darren Eising told The Observer that each project would be decided on its merit.

“If they believe they can earn more than their required rate, the project will go ahead,” Mr Eising said.

“More specifically, if APLNG have sufficient demand for the end product, the project will probably proceed.”

Mr Eising said while there was some softening of short-term demand for LNG, the longer-term fundamentals were still attractive.

“Demand for LNG in Asia is still expected to rise significantly over the longer term – and most of these projects are built with a 20-year time horizon, so they certainly aren't looking at these shorter-term issues when making a decision,” he said.

“Given that there has already been billions spent to date on these projects (buying up the gas acreage, pipelines etc) we believe that unless there were significant changes to the long-term demand for LNG, the projects will proceed.

“However, they may not all happen at once.

“The big issue at the moment is waiting for environmental sign-off from the Federal Government. There may be material conditions attached to this approval that may change the anticipated return from the projects.”

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