Overall resources and energy commodity export earnings declined by 11% in 2014-15 to $174 billion, but LNG export earnings are on an upwards trajectory due to the increase in gas exports being able to offset declining gas prices, the Australian Government's Resources and Energy Quarterly said yesterday.

Oil

The report, compiled by the office of the chief economist (OCE), calculated Australian oil production for the March quarter was down 15% year-on-year basis due to lower output from the Gippsland Joint Venture, Pyrenees, and Mutineer-Exeter projects to 295,000 barrels of oil per day.

But the good news is that while OCE expects production to remain relatively flat in 2014-15, it will recover to an annual average 353,000 barrels a day as additional output from the new Coniston and Balnaves projects offsets natural reservoir decline at older fields and lower third quarter production.

OCE expects production will average of 363,000bopd in 2015-16. Most of that, 301,000bopd, will be exported to Asian refineries, about half of the 667,000bpd of refined product will be imported.

Export earnings are forecast to decline further over the outlook period, falling to $8.6 billion in 2015-16 as low prices continue to outweigh the effect of increasing export volumes.

LNG

The news is far better for gas production, which will rise 30% to 62 million tonnes in 2015-16, with new LNG plants the predominant source of gas production growth in Australia given relatively modest domgas demand growth.

According to the report, Australia exported $4.6 billion worth of LNG in the March quarter, slightly below the December quarter as lower oil prices offset higher volumes.

Exports are estimated to reach $18 billion in 2014-15 and $24.4 billion in 2015-16 due to strong volume growth and modest currency depreciation effects.

"We are witnessing an historic milestone for natural gas delivery as higher energy export earnings reflect the move of Australian LNG projects from construction to operation," APPEA's newly installed CEO Malcolm Roberts said yesterday.

"Further projects due for completion in Queensland and Western Australia over the next year will continue to underpin further growth and deliver significant royalty revenue for public services."

APPEA's optimism for the LNG second comes on the heels of a new report from business information analysts IBISWorld, which found that oil and gas is likely to be a boom market for the local economy next near, along with childcare services and beef production.

Despite widespread concern over a supply glut in Asia, which will be made worse as the Gladstone LNG plants reach full capacity, IBISWorld is tipping that demand from Asian markets, especially Japan, is expected to be a big revenue driver for Australia's liquefied natural gas sector.

The Japanese energy suppliers converted a significant number of generators to gas after the Fukushima nuclear disaster in 2011, and it is still to make up its mind on switching on its nuclear capacity. IBISWorld says Australian LNG producers are well positioned to meet the soaring demand as production and export capabilities rise.

The forecaster said Australian LNG producers will see improved bottom lines because they are selling at international prices, which are likely to always be higher than east coast domestic prices.

Gas price

However, OCE says sustained contract and spot price weakness will temper increasing export values.

The OCE said that LNG prices in the March quarter averaged $US14.20 per gigajoule in the March quarter, down from US$16.60 in December. Prices in South Korea and China were also down.

Most LNG contracts into Asia are linked to a 3-9 month lagged average oil price - hence LNG prices falling despite flatter oil prices, with the Japanese landed price expected to be US$10-12 a gigajoule in Japan, and most price risk will be to the downside as new projects come into the market.

That includes QCLNG, Australia Pacific, Gladstone LNG and Gorgon LNG in Australia, Sabine Pass in the US and a number of Indonesian and Malaysian projects, boosting pacific Basin liquefaction capacity from 252 to 287 million tonnes.

Overall Asian spot prices remain subdued in the US$7-8/GJ range as new supply enters the market, even though opportunistic utilities are buying more.

Oil prices are forecast to remain relatively flat which will result in slight falls to contracted LNG prices in the June quarter before levelling out through the remainder of 2015 and into 2016.

China

China is expected to be one the world's major sources of incremental demand over next few years, growing from 18MMTpa in 2014 to 28MMtpa in 2016, yet downside risks appear to be growing due to increasing pipeline supplies from Central Asia and increasing coal and renewable electricity generation capacity.

Imports in the March quarter 2015 were the first to fall since China began importing LNG in 2006.

If, as early signs suggest, Chinese importers are unable to accommodate new contracted volumes over the short term, a global supply glut could quickly emerge, OCE said.

The market glut has led to some speculation that Sinopec, the major customer for Origin Energy's $24.7 billion Australia Pacific LNG project in Queensland, may be forced to on-sell some of the 7.6MMtpa it is contracted to buy from APLNG.

Quarterly LNG exports reached an all-time high of 6.6MMt in March due to higher loadings from the North West Shelf and Pluto projects and the start-up of QCLNG. Australian LNG exports are estimated hit 38Mtpa in 2015-16 with the commissioning at APLNG and GLNG and Gorgon, all of which are now more than 90% complete.

Oil price

OCE is not expecting to see a bounce in the price of oil.

Indeed, the value of Australia's exports of crude oil and condensate will fall in the near term as the effect of lower prices outweighs increasing export volumes.

Prices will increase only moderately from recent lows as a result of slower growth in non-OPEC supply, with prices likely to be below $US60/bbl, rising to $US66/bbl in 2016 as the effect of reduced upstream investment begins to weigh on production growth.

Global oil consumption is forecast to increase by 1.3% in 2015 to an average 93.7MMbopd, up considerably from the sluggish 0.7% increase observed in 2014.

Net growth will be driven by increased consumption in non-OECD economies that will largely offset slowing growth in OECD consumption.

Increases in non-OECD consumption will be concentrated in Asian and Middle Eastern economies, which together, are forecast to consume an additional 900,000bopd in 2016.

Global production is expected to exceed demand at 94.3MMbopd this year, growing to 95.2MMbopd in 2016.