Abstract
The competitiveness of Australian LNG projects versus US projects has been a subject of much debate. However, as oil prices have fallen since mid-2014, the debate has shifted from the relative pricing terms of the LNG sales contracts to the relative cost of supply. Falling oil prices has decreased the price of LNG in traditional oil-linked price markets of Asia. Lower cost of LNG will increase the demand for gas, especially in the power generation sector. New gas supply will be required to meet increased demand – but the new supply must be at a competitive cost. The market price will be set by the marginal cost of incremental supply. Legacy projects in SE Asia, Middle East and Australia are unable to increase their volumes. The only other source of incremental supply that can profitably sell at these lower prices are new projects in the US Gulf Coast. Australian greenfield projects will not be able to sell at these prices. Australian greenfield projects suffer from high capex, high feed gas prices, and high operating costs. By contrast, US Gulf Coast LNG projects are being constructed as significantly lower unit costs, have access to massive low-cost shale gas volumes, and will operate at low costs using standard technology. These projects are ideally placed to operate in the lower priced environment, irrespective of the pricing index of the LNG sales contracts.