WoodMac: Australia to see $11 bln worth of FIDs in 2021

Australian operators are expected to sanction some $11 billion worth of gas projects in 2021, following a year of belt-tightening.

The projects that are expected to reach the final investment decision (FID) include Mitsui’s Waitsia, Santos’ Barossa and Woodside’s Scarborough as well as the AIE Port Kembla LNG import terminal which will supply the East Coast market.

Wood Mackenzie’s 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.”

The first cab off the rank is expected to be Waitsia, located in the Perth basin. 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 second quarter, despite its new carbon targets and the gas’ high CO2 content.

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.

Toleman said, “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.”

Wood Mackenzie also expects AIE to sanction the Port Kembla import terminal to supply the East Coast market. With formal FID expected in the first quarter of 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.

While corporate spending could see an uptick, signs are less clear in the M&A market. Wood Mackenzie 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, rationalizing 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.

Notably, Australian small caps could take center stage in 2021, Wood Mackenzie said.

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 coal seam gas projects in Queensland. Wood Mackenzie believes at least one will be sanctioned next year.

Toleman said, “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 a revision of plans for new and existing developments. Electrification, CCS and batteries will be the preferred options to reduce carbon emissions.”

However, Toleman noted that the key is whether regulation can keep up with innovation and WoodMac thinks 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”, Toleman said.

Carbon-neutral LNG cargoes will also be in the spotlight. But a standardized definition of carbon-neutral cargo is yet to be determined.