I have not incorrectly said anything - I simply quoted the figures that are available for the proposed income from Gorgon. You are the one with the big story that these figures may not pan out.
Can you provide a link for this information please?
So are you still saying Gorgon will not make as much as it has planned back in 2007? Given that Gorgon has sold 65% of a 30 year supply and the fact that LNG prices are higher now than 2007 when the report was drawn up.
Are you saying that recent reports are wrong and Japan will not increase its use of LNG at all?
And is it seriously your call that no-one will invest in any more gas projects in Australia?
Revenue is better than CAPEX in every way. CAPEX is just debt to invest in future revenue. Maybe it is better not to rush to develop more facilities. It is doubtful that our economy even needs it. We have massive facilities about to come online.
There are many many ifs and buts about US LNG exports and whether they will actually reach the market at these lower prices, it is not a cut and dried case that US LNG will prove as cheap as you are assuming.
My view remains that the Gorgon projects and other new gas facilities will add serious revenue to this country's economy. It is likely that Australia's GDP will grow strongly and all the predictions are that it will grow strongly. I really do not understand why bears are negative about this economy at all. Rubbish Lulldapul Shell have not divested Arrow, and they have not pulled out of Australia.
They have in fact sold assets to prepare for this and other investments. While these execs complain about productivity being below par (what else do you expect) no-one has ever suggested wages cut by 1/2. Australia consistently gets voted the top country for mining investment.
You and Donno have a view that is very far removed from that of the head of the world’s second biggest company, Royal Dutch Shell.
My response was to your supposition:
"The article is already dated as prices have risen dramatically since then. The Japanese tsunami was not part of the Gorgon price planning."
My contention is that long term contracts effectively did price in the Tsunami as the contract rates were just shy of the spot market. The only reason spot prices didn't go higher was because the unanticipated rapid US production ramp up satisfied their own domestic market. http://www.eia.gov/dnav/ng/hist/n9180us1m.htm
Your posts construe the belief that because the spot price has soared since 2009 due to Fukushima, Gorgon must be doing better. I disagree because such rises were already priced in, but they were done so out of expected global demand that didn't take into account rapid advances in US production.
The US wouldn't need to export a single Btu to impact global LNG spot prices if itself, being the largest importer in the world, became suddenly and unexpectedly self sustaining.
I note again you state "Given that Gorgon has sold 65% of a 30 year supply and the fact that LNG prices are higher now than 2007 when the report was drawn up.". Gas price rises since 2007 are completely irrelevant when the Gorgon proposal was financed upon $13-$14 signed contract prices just two years later, which today the spot price is threatening to drop below, even before much of the supply makes it to the spot market.
Do I think Japan's consumption of natural gas will grow in the next 20 years? Sure, and so will production to a point where the spot price is below long term contracts. Seems quite a few consumers agree with me too as they scramble to renegotiate.
I also agree that revenue is better than CAPEX - its more sustainable for the economy and doesn't promote wage bubbles from rapid cash injections into a stretched labour market. The problem is we are at the height of that wage bubble now, and we need to take a hit to move to that more sustainable position.
As for whether anyone wants to invest any further here, that's for the market to decide, but again proof is currently in the pudding with lack of action from QGC, Origin and Shell (Arrow). The head of Shell can talk as much as he likes, that's all he's been doing for the past 5 years. Right now his lack of commitment to Arrow shows his words are meaningless.
The US wouldn't need to export a single Btu to impact global LNG spot prices if itself, being the largest importer in the world, became suddenly and unexpectedly self sustaining.
The US has been exporting gas since at least 2003 (check the above study)
Quote:
Your posts construe the belief that because the spot price has soared since 2009 due to Fukushima, Gorgon must be doing better. I disagree because such rises were already priced in, but they were done so out of expected global demand that didn't take into account rapid advances in US production.
This is not true I never said anything along these lines. I posted the economic analysis for Gorgon and pointed out that your response to me was quoting out of date prices which had since risen by 41%.
Can you please provide data for your statements on the LNG prices utilised for the Gorgon Economic benefits study I posted?
You provided evidence of one long term contract at the prices current in 2013 and a contract signed in 2009. This is not evidence of the expected prices that were used in the economic benefits analysis in 2007/2008.
Quote:
Gas price rises since 2007 are completely irrelevant when the Gorgon proposal was financed upon $13-$14 signed contract prices just two years later,
Of course they are relevant, the 2007 estimates are the figures used to draw up the economic benefits that you are questioning.
The projected income which you are questioning was not based on the final realized long term contracts, they would have needed to time travel to know this.
Prices signed up two years later could not possibly have any influence at all on the economic benefits proposed in 2007.
Definition of a doom and gloomer from 1993 The last camp is made up of the doom-and-gloomers. Their slogan is "it's the end of the world as we know it". Right now they are convinced that debt is the evil responsible for all our economic woes and must be eliminated at all cost. Many doom-and-gloomers believe that unprecedented debt levels mean that we are on the precipice of a worse crisis than the Great Depression. The doom-and-gloomers hang on the latest series of negative economic data.
The US has been exporting gas since at least 2003 (check the above study)
This is not true I never said anything along these lines. I posted the economic analysis for Gorgon and pointed out that your response to me was quoting out of date prices which had since risen by 41%.
Can you please provide data for your statements on the LNG prices utilised for the Gorgon Economic benefits study I posted?
You provided evidence of one long term contract at the prices current in 2013 and a contract signed in 2009. This is not evidence of the expected prices that were used in the economic benefits analysis in 2007/2008.
Of course they are relevant, the 2007 estimates are the figures used to draw up the economic benefits that you are questioning.
The projected income which you are questioning was not based on the final realized long term contracts, they would have needed to time travel to know this.
Prices signed up two years later could not possibly have any influence at all on the economic benefits proposed in 2007.
"I posted the economic analysis for Gorgon and pointed out that your response to me was quoting out of date prices which had since risen by 41%"
"Of course they are relevant, the 2007 estimates are the figures used to draw up the economic benefits that you are questioning."
"The Japanese tsunami was not part of the Gorgon price planning."
"There has been massive price inflation since GORGON was planned, recent lows were down from unexpected highs. Spot LNG prices have been rising again since July (a gain of 41%) so the article is already dated."
OK, we're going around in circles here. You keep crowing about 41% increases in spot prices, but that increase was already factored into contract prices based upon forecasting for when the product was expected to hit the market.
Currently the Japan LNG spot price is right on the long term contract price, but the former has been completely distorted by the Fukushima disaster.
The only reason spot prices didn't go to the moon (well over the $15.50 MBtu mark) was because they were tempered by the unexpected US production ramp up - go back to that graph I posted at the top and work out the delta between US and Japanese imports between 2010 and 2012.
All the new supply is yet to even make it to market (starting around 2015), and when it does the spot price will fall well below contract rates and consumers know this, hence the scramble to renegotiate contracts.
Ask yourself, what would the current Japan spot price be had Fukushima not occurred? Would it be below the long term contract rates of $13-$14 MBtu? In 2010-2011 it was steady at $10 MBtu if not declining slightly.
Between 2004 and 2012 energy consumption in Japan actually decreased slightly. Check my previous posts for the link. Japan are looking at re-starting their nuclear reactors, the LNG spot price is already retreating. Again check my previous post for links. The US, at 1/6th of global LNG consumption, the most in the world, will continue to ramp up production until they are energy self sufficient and then consider exporting at volume. This was not anticipated when the Australian developments were on the drawing board.
Would you sign a 20 year contract at what is likely a 30%-40% mark-up to norm (Fukushima price distortions), right before a glut of new supply makes it online and the worlds largest consumer becomes self sufficient?
QGC - won't commit to planned phase 2. Origin - won't commit to planned phase 2. Shell - yet to commit to phase 1. Gorgon - 46% over budget, 20% short on long term contract targets, some whom have signed are seeking renegotiations. Russia to undercut Australian/China contracts by 30%. http://www.abc.net.au/news/2014-05-28/russian-gas-threat-for-australian-producers/5484124
The proof is clearly in the pudding - I'm just trying to explain why.
I'm actually going to correct myself here - the above chart from Skammy is actually world wide (I misread the context around it), however it conveniently ends right at the US production ramp up in 2008.
Refer to the chart and links I posted for the latest US import/export figures.
Skamy - I live right smack bang where Arrow was supposed to go. At this stage it isn't happening.
So did you read the article outlining Shell's intentions which I posted? It will be good news for you as it seems they have every intention of going ahead.
Quote:
“The (LNG) demand is there and we very much like investing in an OECD country that is so well placed geographically and in terms of capability, and which we know well because we have been here for more than a century.”-------- Mr van Beurden said Shell was keen to increase its investment in Australia over the next five years through development of Browse and Arrow, through a tie-up with another Gladstone LNG plant because Asian LNG demand is expected to underpin a doubling of global LNG demand between now and 2030.
Another reason why WA is actually doing just fine.
Definition of a doom and gloomer from 1993 The last camp is made up of the doom-and-gloomers. Their slogan is "it's the end of the world as we know it". Right now they are convinced that debt is the evil responsible for all our economic woes and must be eliminated at all cost. Many doom-and-gloomers believe that unprecedented debt levels mean that we are on the precipice of a worse crisis than the Great Depression. The doom-and-gloomers hang on the latest series of negative economic data.
All the new supply is yet to even make it to market (starting around 2015), and when it does the spot price will fall well below contract rates and consumers know this, hence the scramble to renegotiate contracts.
I agree with most of your analysis, but I'd say that there are some huge uncertainties in the next 5-10 years because some things are changing very fast and the order of change is uncertain.
a) The US is obviously going to come on-line in a serious way over the next decade, ramping up to nett exports of LNG of maybe 45MT/annnum and even potentially higher, but there is strong political opposition and it might take quite a bit longer than expected. The needs of Europe may push things along here (see below). I can't see the US being really significant in the seaborne LNG market before 2017/8 at the earliest. They just haven't started construction on enough capacity.
b) As things stand now, quite a few European countries are quietly committed to shutting down trade with Russia as much as possible if not completely, which includes not buying their gas any more. I expect this to soak up pretty much every BTU that the US can export.
c) Russia on the other hand is building infrastructure as fast as it can to move gas east instead of west, both to pipe into China and Japan and to export as LNG from their east coast. It will take them years to build the capacity though.
d) China is converting power generation and transportation from coal and oil to gas as fast as they can get gas supply at a reasonable cost. In addition to building pipelines to get gas in from Russia and Central Asia, they are expanding LNG import facilities at a very fast clip. My view is that they will increase demand as fast as they can, consistent with not pushing up the price too much. This will put a floor on the price of gas long-term.
e) Japan will probably turn their nukes back on.
Depending on the order in which order the shoes drop, we could get a fairly interesting ride.
The truth will set you free. But first, it will piss you off. --Gloria Steinem AREPS™
I'm actually going to correct myself here - the above chart from Skammy is actually world wide (I misread the context around it), however it conveniently ends right at the US production ramp up in 2008.
Refer to the chart and links I posted for the latest US import/export figures.
I appreciate what you are saying about threats and new technologies that are changing the nature of the LNG business. You have added to my knowledge and understanding in our debate.
I have always just argued the case that the outlook from these projects is extremely good for WA.
IMHO the negatives facing the LNG industry might remove the shiny bright gloss but they will not change the fact that these new LNG facilities will be a boon for the State and the country.
Definition of a doom and gloomer from 1993 The last camp is made up of the doom-and-gloomers. Their slogan is "it's the end of the world as we know it". Right now they are convinced that debt is the evil responsible for all our economic woes and must be eliminated at all cost. Many doom-and-gloomers believe that unprecedented debt levels mean that we are on the precipice of a worse crisis than the Great Depression. The doom-and-gloomers hang on the latest series of negative economic data.
Miw - Generally agree with every point you've made. World wide the LNG industry will boom, but I think Australia is just too expensive to do business in right now. If the dollar drops enough and wages in kind we may have a chance in another decade, but by then Russia would have captured most of the emerging Asian markets.
As you say, it will certainly be an interesting ride.
Skammy - Undoubtedly any royalties will be a boon for the WA budget, however I think the end of the CAPEX sugar hit with declining wages will measurably impact the economy. We will go from say $10bn being injected into the local economy annually from a project like Gorgon in terms of CAPEX (5 years, $54bn), to just $1bn in royalties (note these are just thumb suck figures - I believe WA currently pulls in ~4bn in combined royalties across mining and hydrocrabons annually). The net effect on the economy from current state of play is negative.
With regards to those jobs figures, I believe Roy Hill is just starting to mobilise - quite a lot of the contractors on my job (just formally handed over the plant to commissioning last week, I was quite drunk last Tuesday let me assure you!) are heading there immediately. I'd say those figures will be positive for a month or two before swinging back the other way.
When construction projects start, the job numbers ramp up gradually, but once the project is complete they plummet overnight. Our site went from 400 contractors to about 50 in the space of a week.
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