Not specifically of LNG production, yet. It’s more a case of signs emerging that too many people are trying to play the LNG game at the receival end, especially in the US.
So what, say the teams of earnest young men and women trying to turn the Gorgon and Pluto projects from dreams into reality. What happens in the US hardly affects us.
But that, as The Slug will demonstrate, is a critical mistake. What happens in the US oil and gas industry affects everyone – and last week signs emerged that the US gas industry is being well served by foreign LNG, perhaps too well served.
In a surprise development, news of which has yet to reach Australia, BP announced that it was pulling out of the Pelican Island LNG receival station that was to have been installed off the coast of Texas.
Environmental protestors had made Pelican Island a bit of a cause locally, but the project had survived them, and even won a few supporters among the residents of nearby Galveston.
What caused BP to get cold feet was the simple fact that there are too many LNG receival terminals planned, or being built, along the US east coast – or as Stacy Nieuwoudt from Pickering Energy Partners in Houston told Dow Jones Newswires: “You’re talking about 17 billion cubic feet of capacity online by 2010 in a 60Bcf market.”
Translated into English, Stacy was saying the magic word: “Glut”.
BP certainly appears to have got the message. The London-based company said in a statement that it was pulling out of Pelican Island because of “its assessment of the project’s economics”.
Translated into English, the chaps at BP were also saying: “Glut.”
Right along the US east coast, there is a stampede underway to build LNG terminals to feed the fast-growing US gas market.
But what BP has discovered is that unless you get in early, a boom can quickly fizzle out. Logjams develop, firm demand doesn’t quite match forecasts, and the best customers are first to be satisfied, leaving latecomers to fight over the remnants – or, worse still, indulge in a bit of speculation that demand will build in the future.
The Slug has been around long enough to know several things about LNG plants, including the immutable law that long-term, rock-solid, iron-clad, sales contracts are absolutely essential to justify multi-billion dollar investments.
It would be an extremely courageous executive (from the foolish school of courage) who proceeded with an LNG development without those base-load contracts that covered the cost of capital, as a minimum requirement.
At this point, Australian LNG supporters will be screaming that they only want to produce the stuff, that they’re not in the receival terminal business – and that their target is the west coast, not the east.
Well, dear boys, this will come as a shock, but you are in the receival business, because the receivers are the people who buy your LNG, and without them you’re not in business at all. And what happens on one side of the US has a habit of affecting the other side, very quickly.
To put that another way, if there really is a glut emerging in the receival business in the US, that also means there is a potential glut of LNG emerging. That’s why there is a whiff of panic coming from the crews running the Gorgon and Pluto projects.
It’s too early to say that problems in the US will stymie the LNG project schedule in Australia.
But if the US goes into glut mode, and China is refusing to pay today’s market price for LNG, then the potential market for Aussie gas might be showing signs of drying up – hence the signs of concern that time is bearing down on Gorgon, Pluto and the projects to follow.
*As an afterthought, is there any significance for Pluto LNG in its star losing planet status? Just an idle consideration.
Note: The views of Slugcatcher are not those of APPEA.
