Gorgon Train 3, Wheatstone, Ichthys and Prelude are all targeting start-up in 2017, which will conclude the wave of eight LNG megaprojects sanctioned in Australia since 2007, catapulting Australia to becoming the world's largest LNG exporter. However, it is inevitable that some will suffer further schedule slippages, so it is highly doubtful we will see them all manage to start up this year.

There has been uptick in the number of fiscal changes globally since the oil price collapsed in 2014, with most of them providing better terms for industry to try attract investment through the downturn. Yet, in some places producers are bracing themselves for governments attempting to seek more revenue, including in Nigeria, Australia and Alaska.

 

Australian Treasury's review of the PRRT may cause industry concern regarding investment climate stability, as it struggles to combat some publically noisy claims surrounding the adequacy of the fiscal take under Australia's tax regime.

 

Australia's LNG investment over the last few years has been larger than the rest of the oil and gas sector, iron ore, coal and gold mining sectors, and been a major contributor to the economy and factor that prevented Australia going into recession through the GFC. 

 

Any poorly thought through changes to the LNG tax system could present a real danger to the Australian economy as a whole. 

 

On the other hand, Treasury's review could be used as an opportunity to identify ways to make the petroleum tax regime more efficiently administered, and find ways to encourage further investment domestically, so that we realise a larger revenue pie for government and achieve a boost to local businesses and jobs.  

We expect oil prices to be stronger in 2017 than 2016, but forecast global gas markets to become progressively oversupplied through the course of 2017.

 

The US gas could become the global price setter in 2017 as US LNG exports more than double to around 11 million tonnes. 

 

With little room for more LNG in Asia, some US LNG capacity could simply be shut in on an economic basis. And with US LNG capacity lying idle, Asian spot LNG prices may begin being driven by Henry Hub prices in 2017. This would create a direct link between US gas prices and Australian projects' profitability.

We forecast a tight gas supply situation on the east coast, with the risk of a shortfall as early as 2019.

 

With Bass Strait running hard already and core maintenance spend in the Cooper basin being pushed back, there is little supply flexibility left and it's unclear how the system will cope with unexpected but inevitable supply outages, particularly if combined with a cold winter and limited gas storage in place this year.

 

The risks to reliable energy supply will likely only increase going forward unless additional gas supply or alternatives are found. Policies restricting gas drilling, and the retirement of coal power generation without a strategy for capacity replacement in place is only exacerbating the problem. 

 

We see the key source of gas supply flexibility for the eastern states could come from the Queensland LNG projects diverting gas to the domestic market in response to price signals, rather than exporting.

The energy industry in the US and beyond has been trying to determine the strategic priorities of the incoming Trump administration. Trump's campaign made an issue of energy independence, further exploitation of domestic oil, gas and coal reserves, encouraging gas demand, lowering taxes, and job creation in the industry. Infrastructure may get an easier ride; Keystone XL is likely to get the green light, and regulatory barriers that raise costs or limit domestic production may be dismantled.

 

A more favourable upstream environment in the US, with lower regulatory burden and lower taxes could encourage more and lower cost tight oil and gas production, implying lower Henry Hub gas prices.

 

For Australia's energy industry, where LNG exports dominate, the implications of a Trump Presidency for US gas production and prices will be key, as this will have a flow on effect to Asian LNG prices.  There may be a risk of lower spot LNG spot prices if policy encouraging more and lower cost US gas production, through lower regulation and taxes, eventuates.

Confidence may start to return to the sector, bringing the crushing two-year investment slump to a close, with global capital spend forecast to rise by 3%to $US450 billion.

 

The increase is driven by unconventional resources in the US however, which is highly sensitive to price fluctuations - if oil prices soften then US investment could retreat.

 

Investment in Australian projects will continue its decline from its peak of more than $45 billion in 2014, as the final stages of LNG project construction finish up.

We expect more than double the number of FIDs to be taken in 2017 compared to 2016, but still well below the levels of the boom years. Globally, the hot oil plays in 2017 will be US tight oil and Brazil deepwater, both of which have material scale and are among the lowest unit cost developments globally. 

 

Indeed, deepwater may have a revival, with deepwater assets making up a third of the prospective FIDs for 2017, with around half of them breaking even below $US55/bbl (NPV 15 basis). 

 

In Australia, no large scale LNG FIDs will take place until the North West Shelf and Darwin LNG Joint ventures make sufficient progress on third party gas supply, which could yet entail years of negotiations. New Australian greenfield LNG projects are simply not on the cards for years to come.

The Paris Agreement implied a downside risk to longer term hydrocarbon demand growth. 

 

Yet less than a week after it had come into force, the Paris Agreement was thrown into doubt by the results of the US presidential election.

 

Fossil fuels remain the cheapest and most abundant forms of energy and carbon targets have historically fallen by the wayside when economic growth is a country's primary concern. 

 

However, disruptive technology can change the picture. 

 

Solar power enjoyed a vibrant 2016, buoyed by a series of 'world record' low prices for new projects, and the rise of electric vehicles has created pause for some in the industry to consider the sustainability of longer term oil demand growth.