Wave of Australian LNG write-downs looms amid oil slump

By James Paton
Updated February 4 2015 - 5:18pm, first published 2:38pm
The seven-month oil rout threatens to erode the returns of local LNG producers, whose contracts with Asian buyers are linked to crude. Photo: Michele Mossop
The seven-month oil rout threatens to erode the returns of local LNG producers, whose contracts with Asian buyers are linked to crude. Photo: Michele Mossop

BG Group's move to write down the value of its Australian assets after the slide in oil prices may kick off a wave of impairments in the country's natural gas export industry.

"There will be more impairments to come," predicts Neil Beveridge, a Hong Kong-based analyst at Sanford C. Bernstein. "It's a reflection of the over-exuberance that we've seen over the last few years in Australia" with liquefied natural gas projects assuming higher crude prices would remain, he said.

A seven-month oil rout threatens to erode the returns of local LNG producers, whose contracts with Asian buyers are linked to crude. The outlook for Australian commodity export revenue has deteriorated significantly, with price declines estimated to lead to a potential loss in LNG earnings of about $200 billion by 2025, according to a Goldman Sachs report published on Wednesday.

Companies including Santos, Origin Energy, ConocoPhillips, Chevron and Inpex are building six Australian LNG plants to meet Asian demand, putting the nation on course to surpass Qatar later this decade as the world's biggest exporter of the fuel.

Those developments will follow the start of shipments late last year at BG's $US20.4 billion ($26.2 billion) LNG project in Queensland.

"Logic would state there should be" more write-downs for companies including Santos, said Mark Samter, a Sydney-based analyst at Credit Suisse. They should be important to investors because "it's an implicit read on what the future cash generation will be on the real dollars spent yesterday," he said.

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