LNG

LNG boom gone bust

LNG boom turns to bust as falling oil price hits exports, Matt Peacock, Australian Broadcasting Corporation, July 21, 2016:

Australia’s largest ever investment boom of $200 billion into Liquid Natural Gas (LNG) during the past decade has crashed spectacularly, and left the Federal Government with little or no revenue to show for it.

Key points

  • $200 billion invested in Australian LNG projects over the last decade
  • Australia set to become the world’s biggest exporter of LNG
  • LNG price has fallen 75 per cent

Australia’s gas is now being exported to Asia at close to the cost of production, leaving investors with marginal returns and raising the prospect some coal seam gas projects may be mothballed.

Energy analyst, Greg Houston, says the LNG crash is a slow moving train wreck:

We are on the cusp of becoming the biggest gas or LNG exporter in the world. But the collapse of the gas price means that there will be little or no financial benefit.

Two years ago, Forbes’ business writer Clem Chambers stated:

The trend is your friend, at least until the bend in the end.

Indeed, early participants look good when a bubble begins to form but latecomers are simply running with the herd and inevitably, they become big losers. Smart money depends upon it.  Sophisticated players profit when asset values rise and profit again when asset values fall. This is a reality of the marketplace. The artful take advantage of the artless.

Christy Clark and her crew spent more than a billion dollars through the Ministry of Natural Gas Development, gave away billions more in gas industry subsidies and promised low or no taxes, taxpayer-paid infrastructure and subsidized electricity;  all in the hope of creating an LNG industry that had a competitive disadvantage from the start.

Critics like the one you’re reading knew LNG promises were hollow but this Government would rather waste vast sums to avoid admitting failures from incompetence and poor judgement.  They will ultimately argue bad luck and unforeseeable circumstances; knowledgeable people will know differently.

iridient-bubbles-4


In comments, Barry mentions private power contracts lasting decades. Here’s an example, taken from an AltaGas investor notice. The company boasts of profitability guaranteed to increase steadily through CPI price indexing. I’m reminded of one advocate for education stating this was a courtesy never extended to public school systems

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By the way, be aware that taxpayers spent almost $1 billion building the Northwest Transmission Line. It serves Imperial Metals’ Red Chris Mine and AltaGas. I hope the Liberal Party is doing well in their relationship with AltaGas; the company is certainly benefiting.

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Categories: LNG, Natural Gas

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6 replies »

  1. Do you think the media will be as harsh on the Libs with LNG as they have been (and still are) on the NDP with the fast ferries? Do you think 20+ years from now they will be bringing up the billions of dollars wasted on LNG? This is way worse, they should be twice as hard on them you would think, but I would be suprised if they even mentioned it, ever, or if they do, they will say that they were trying to get the industry started and make excuses for them, but didn’t the NDP want to kickstart ferry building in BC?

    Liked by 1 person

    • As Norm says elsewhere, BC Hydro — by Liberal decree — paid independent power producers $672 million more than market price, for power that BC Hydro could have produced themselves, or bought at market price from the USA.

      In 2015 dollars, $672 million would have more than paid for the entire Fast Ferry program. What’s worse, we are tied to these overpayments for decades… so, effectively, three Fast Ferries will be built, then taken out and sunk each year.

      What’s even worse: the government has not seen the folly of their ways and new IPPs are being developed as we speak, with Hydro obliged to build power lines to go and pick up the power.

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  2. “Christy Clark and her crew spent more than a billion dollars through the Ministry of Natural Gas Development, gave away billions more in gas industry subsidies and promised cheap infrastructure and subsidized electricity, all in the hope of creating an LNG industry that had a competitive disadvantage from the start”

    Good grief! As the late Senator Everitt Dirksen once said, “a billion here, a billion there and pretty soon you’re talking real money!”

    This is outrageous and only a government could get away with it.

    This is a business savvy government?

    Where in God’s name is the Opposition?

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    • Raif the opposition is being ignored by the same media (I use that term tongue in cheek)that promotes those so called liberals

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  3. Where is the opposition? Where are the people? Where are the comments? Good Grief! A topic of this significance, and only four comments? I know its summer holidays, but there should be riots in the streets.
    I know, it feels pretty hopeless, commenting on something your helpless to control, but for gawds sake people, at least declare that you’re ‘mad as Hell and not going to take it any more’!
    Do I feel better? Not much.

    Like

    • John, despite doing this for some years, I’m still surprised at what gets people activated. Or, more precisely, what things don’t activate them.

      Like

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