Half the proposed liquefied natural gas plants in Australia could face delays, analysts say.
A larger playing field of supply options for Asian LNG customers could adversely affect the prices producers receive, giving buyers an advantage in contract negotiations, according to a Merrill Lynch report.
"Project attrition, delay and even outright cancellation are inevitable," wrote Sydney-based analyst Mark Hume to Merrill Lynch clients, Bloomberg reports. Hume said that about half of the 30 proposed LNG processing units in Australia and Papua New Guinea could still stay on schedule.
While annual LNG demand is forecast to grow to 384 million metric tons by 2020, exceeding supply, "it is a far cry from the heady days of 2007 when expectations were for demand to grow to circa 500 million tons a year," Hume wrote.
Chevron Corp., Royal Dutch Shell Plc and Woodside Petroleum Ltd. are among Australia's key players competing for LNG customers. But for "preferred global LNG supply-side picks," Bank of America Merrill Lynch chose BG Group Plc, Inpex Corp., Oil Search Ltd., a partner in Exxon Mobil Corp.'s Papua New Guinea venture, and Origin Energy Ltd.
"We think it's time to get selective," the Merrill Lynch analyst wrote in the Jan. 15 report.
Hume said a shortage of engineers and other specialists could push labor costs higher for LNG producers, Bloomberg reports. And Ventures relying on conventional technology could face additional pressures from floating LNG plants with "clear cost advantages" over land-based facilities.
Hume estimates that expected demand for LNG in 10 years would support about 14 Australian projects with a combined potential of adding 60 million tons of supply a year. More plants could be justified if demand from China exceeds expectations.
Yet rising domestic gas production in China may reduce demand for imports, Adrian Wood, a Sydney-based analyst at Macquarie Group Ltd. wrote in a Jan. 12 report. Supplies from Qatar and increased use of nuclear power generation in Asia are among other risks for Australian LNG ventures, Wood said, Bloomberg reports.
LNG processing units being proposed now may generate lower returns than similar developments approved in recent years, Wood said. About half of the growing list of proposed LNG projects may be approved, he said in the report.
"While we continue to see huge value in the large portfolio of undeveloped LNG projects held by Australian companies, we nevertheless believe investors should brace themselves for project delays, higher construction costs and the potential for a more competitive pricing environment going forward," Wood said.
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