Oil & Gas Tipped to Perform Well in 2020 WALLY GRAHAM Resource and energy commodity markets have taken a belting lately, thanks in no small part to the US-China trade tensions and a flagrant disregard to supply changes. As the R-word (recession) is being bandied about by market and economy analysts the world’s industrial production cycle has continued its recent deceleration, which shows no intention of waning. Just how much further the decline can reach is most likely to depend on if, and by how much, the Chinese economy can grow and whether or not Donald Trump learns to play nicely with the United States’ trade partners. Gas Australian liquefied natural gas (LNG) exports are anticipated to perform well, despite their role on the global stage being enacted before a backdrop of overcapacity and low spot prices. Australia’s LNG export earnings in 2018-19 hovered around the $50 billion mark. Export volumes are forecast to increase these earnings to around $54 billion in 2019–20, before falling back to $50 billion as prices ease. Australia’s LNG export volumes are forecast to increase from an estimated 75 million tonnes in 2018–19 to 81 million tonnes in 2020–21, as new projects come on stream to extend the country’s LNG output. These include the expected ramp up in export volumes from the Prelude and Ichthys projects. Shell shipped the first LNG cargo from its Prelude project on 11 June, and is expected to increase production during 2019–20, while Train 2 at Ichthys is expected to come online during 2019. In its June Resources and Energy Quarterly, the Office of the Chief Economist predicted our LNG export prices to remain stable in 2019–20 and then decline in 2020–21. The Chief put this stability down to an appreciating exchange rate and easing LNG contract prices, at which most Australian LNG is sold. LNG spot prices, the Chief outlined, are forecast to remain low, as additions to global capacity outstrip increases in world demand. “Australia’s LNG exports are surging,” the chief economist said. Australia is in competition with Qatar for the title of the world’s largest LNG exporter over the first five months of 2019 with the former opening some daylight in April as Qatar’s exports dipped due to maintenance, however Qatar regained the edge on Australia in May. “Australia could be the world’s largest LNG exporter for the next few years,” the chief economist proposed. “Australia is forecast to edge past Qatar as the world’s largest LNG exporter (on an annual basis) when exports reach 78 million tonnes in 2019, and extend its lead in 2020 as exports climb to 81 million tonnes. “However, the narrow difference between the projected exports of the two nations means that Australia overtaking Qatar is not a certainty.”
That uncertainty arises due to a lack of clarity around the precise level of Qatar’s LNG exports. According to International Energy Agency (IEA) data Qatar’s has exported 75-76 million tonnes per annum over the past two years, while data from the International Group of Liquefied Natural Gas Importers (GIIGNL) has exports at 77-78 million tonnes during this time, and shipping data suggests Qatar exported 79-80 million tonnes of LNG over the same period. However Australia shapes up, it is expected to be surpassed as the world’s largest LNG exporter during the mid-2020s, not only by Qatar, but also the United States, as new projects in both countries come online. Our chief economist has revised Australia’s anticipated export earnings to the positiuve part of the graph compared to its March 2019 assessment. “Export earnings are now expected to be $1.1 billion higher in 2019–20, reflecting an upwards revision to the oil price forecast…and a downward revision to the AUD/USD exchange rate assumption,” the chief economist said. “An upward revision to prices has offset the impact of a downward revision to export volumes. “ConocoPhillips confirmed in June that it expected the Darwin LNG plant to shut down for 1-2 years, starting between 2021 and 2023, when gas from the Bayu-Undan field is exhausted. “While falling output at Darwin LNG was factored into the outlook for the March Resources and Energy Quarterly, production is now expected to decline at a faster rate.” Oil Oil markets have not been immune to the concerns shared by other global markets as fearless leaders around the world participate in domestic and international arm wrestling and sabre-rattling contests. All of which have extrapolated a period of volatility, creating demand and supply uncertainty in the short term. The oil market enjoyed a moment of steady price increases over the first five months of the year until hitting high volatility in June 2019, reflecting the uncertainty over global economic conditions and oil supply prospects. Even so, the chief has indicated that Australia’s oil export volumes are forecast to peak during the outlook period, as a side effect of new LNG projects coming online. Earnings from oil exports are forecast to continue in a positive direction, rising from $9.3 billion in 2018–19 to $12 billion in 2019–20 before falling back slightly to $11.2 billion in 2020–21. The anticipated 2019–20 peak reflects expected volume growth, a higher expected oil price and the impact of a weak Australian dollar. The price of oil increase steadily through the year until the middle of May, with the Brent crude benchmark rising from US$53 a barrel on 1 January to peak at US$74 on 16 May 2019. “Price growth was supported by the curtailment of supply under a production agreement, called the ‘Vienna Agreement’, between
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