Overstretching the Australian LNG Industry

Paddy Manning has an article on the SMH on the Australian LNG boom (starting the gas age) - Too much too soon has left LNG industry overstretched.

The proponents of Australia's massive liquefied natural gas boom are doing the hard yards.

Seven enormous projects worth more than $US172 billion ($165 billion) combined are under construction all at once. Already this year two operators - BG Group and Santos - have announced cost blowouts, of $US5 billion and $US2.5 billion, at their respective coal seam gas projects - Queensland Curtis LNG and Gladstone LNG.

Santos's efforts to window-dress the announcement, as a pull-forward of upstream capital expenditure scheduled for post-2015, fell flat.

In the last fortnight, in quarterly earnings calls, Chevron admitted it faced rising costs on its $US43 billion Gorgon project on Barrow Island, and its budget and schedule were under review, and Shell flagged it could delay Australian LNG projects worth $US17 billion.

The head of global gas for energy analyst Wood Mackenzie, the Edinburgh-based Noel Tomnay, says Australia will be ''one big bad news story for the next couple of years, with delays to projects and cost over-runs. It seems inevitable.''

Australia's strong dollar, rising labour and compliance costs are being blamed for the pressures, and competition from lower-cost countries is causing investors to think twice about Australian LNG.

Tomnay says this year's cost blowouts are unlikely to be the last announcements. ''With that in mind, it would be a brave board that went out to investors right now with an investment decision on another Australian LNG project,'' he says. ''Would the market reward another announcement? Probably not. It would be more pragmatic to announce a breather. 'Annual capital expenditure on Australian LNG is going from $US10 billion to $US40 billion, which is highly inflationary. There has to be a hiatus.''