Australia Could See US$11bn in 2021 FIDs: WoodMac
Australia could see at least US$11bn of gas projects reaching the final investment decision (FID) next year, Wood Mackenzie said on December 10.
With LNG backfill as the focus, these projects include three upstream FIDs on Mitsui’s Waitsia, Santos’ Barossa and Woodside’s Scarborough projects , as well as on the AIE Port Kembla LNG import terminal which will supply the east coast market.
“After doing everything possible to tighten belts this year, Australian operators will open their wallets and start spending,” Wood Mackenzie senior analyst Daniel Toleman said. “The backlog of FIDs will begin to clear as a fresh round of projects are sanctioned. But for this to occur, there has to be continuing improvement in the macro-environment and prices trending up.”
Waitsia, located in the Perth basin, could be the first project to reach FID. The project will export LNG from the North West Shelf with production starting in late 2023. Next, Santos is expected to sanction the Barossa gas project late in Q2, despite its new carbon targets and the gas’ high CO2 content, WoodMac said.
Woodside is likely to sanction the Scarborough to Pluto project. The lean Scarborough gas suits a new expansion train and Woodside can control the pace of a Pluto train 2 development. “Woodside will sanction the project without contracting any additional LNG, taking on exposure to the spot LNG price. This is a bold strategy which allows them to take advantage of strengthening near-term market fundamentals,” Toleman said.
WoodMac also expects AIE to sanction the Port Kembla import terminal to supply the east coast market. With a formal FID expected in Q1 2021, the facility will operate on a toll basis with gas buyers reserving capacity.
“LNG imports will become the marginal cost of supply and domestic prices would rise as they move towards global LNG prices, including the cost of regasification. This is positive news for upstream players with uncontracted gas,” WoodMac added.
M&A market signs yet unclear
While corporate spending could see an uptick, WoodMac said, signs are less clear in the M&A market. It expects at least one significant LNG or infrastructure asset to change hands. However, many assets will remain on the market as the bid-ask spread cannot be closed and buyers struggle to move past the abandonment liabilities and complicated joint ventures. Key drivers for selling include deleveraging balance sheets, rationalising portfolios and preparing for the energy transition.
As international oil companies and the majors exit the market, there will be opportunities for local players to take up bigger roles in the country’s upstream industry, WoodMac said.
Australian small caps could take centre stage in 2021. Strike Energy could sanction the first phase of the West Erregulla project supplying the Western Australian domestic market. Three companies – Galilee Energy, Central Petroleum and Comet Ridge – are pursuing FIDs on coalbed methane projects in Queensland. WoodMac said at least one will be sanctioned next year.
“If there is anything set for 2021, it is the energy transition story and how Australia will play a leading role. Central to this will be revision of plans for new and existing developments. Electrification, CCS and batteries will be the preferred options to reduce carbon emissions,” Toleman said. “However, the key is whether regulation can keep up with innovation and we think this is unlikely in 2021. As a result, we believe Santos’ Moomba CCS project, will not be sanctioned next year despite it being FID-ready and economically attractive. For the project to go ahead, Santos must ensure carbon credits can be assigned to re-injected CO2, allowing future emissions to be offset.”
Carbon-neutral LNG cargoes will also be in the spotlight. But a standardised definition of a carbon-neutral cargo is yet to be determined. “In 2021, look for steps towards increased transparency and consistent emissions measurement, and carbon regulation advancing in Australia,” Toleman said.