the future of queensland's gas sector

Sunrise Seminar The Future of QLD’s Gas Sector

Thursday 28 July 2016

The Future of QLD”s Gas Sector © Deloitte Touche Tohmatsu 2016 1

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Follow up for more insight

• National Director, Oil and Gas, Deloitte Brisbane

• Blog: www.geoffreycann.com

• Twitter: @geoffreycann

• Email: [email protected]

• Phone: 0447-366-333

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Queensland’s gas sector has a bright future, if you squint

• The pain is real and the patient is unwell

• Demand is still strong but supply growth stronger

• Australian projects shifting to ops

• Global sector conditions favour price upturn

• Watch a few indicators


Analysts focus on commodity prices, but that is not the whole story

Source: IMF, World Bank

$US/ mmBtu

Historic Global Gas Prices, USD, 2005-2016


Demand is rising 4.5% CAGR from 2015-2035, but LNG capacity is ahead. US gas will really pressure the field

Source: Deloitte MarketPoint‏

Liquefaction Capacity and LNG Demand, 2011-2035


Future industry growth strongly favours US geologic productivity, liquids rich, deep supply base, free trade in oil and gas

Source: EIA (2016), Drilling Productivity Report

US Gas Rig Productivity 2007-2016


As Australia’s king tide recedes, ops and maintenance take over

Source: Deutsche Bank, Project Websites

FEED FID Production

39.5 53.2 20+ 8+

2 years 2 years 4-5 years 20 years

PROD 2015

PROD 2016

PROD 2017

TBD

PROD 2016

PROD 2017

PROD 2015

PROD 2017

PROD 2012

STALLED

PROD 2014

TBD

TBD

PROD 1989

PROD 2006

92.7 $25B

STALLED

STALLED

Location Project Pre-FEED MTPA CAPEX

WA NWS 16.5

NT Darwin LNG 3.6

WA Pluto-1 4.3

PNG PNG LNG 6.6

QLD QCLNG 8.5 $10B

QLD GLNG 7.8 $5B

QLD APLNG 9.0 $10B

WA Gorgon 15.0

WA Wheatstone 8.9

NT Ichthys 8.9

WA Prelude 3.6

WA Pluto-2 4.3 $10B

WA Pluto-3 TBD $10.4B

WA Browse 12 $44B

NT Sunrise 4 $13.2B

QLD Arrow LNG 8 $20B+

NT Bonaparte LNG TBD TBD

Operate Construct Design


Some view Australia’s projects as uneconomic under current conditions

Source: Deloitte Access Economics, Wood Mackenzie

Japan Contract

Japan Spot

Global projects Global under construction Australian projects Australian under construction

Breakeven Cost By Project and Cost Category (DES Japan)


Since plant capex is sunk, attention now swings to managing upstream capex, opex and transport (trading)

Japan Contract

Japan Spot

Breakeven Cost By Project and Cost Category (DES Japan)

Source: Deloitte Access Economics, Wood Mackenzie


Capital spend in oil and gas globally has dropped below levels required to provide for growth and sustain volumes

Global Upstream Spending, ex MENA, $B


The funding gap from 2016-2020 is $2T, required to move industry back to historic reserves levels

Cash inflows vs. outflows of the industry (listed E&Ps, IOCs, NOCs; 2016-2020)

Source: Deloitte Market Insights


Even as reserves fell, debt levels have doubled since 2008. Dividend payouts are still robust


Queensland’s exploration well program shows the same pattern

Source: GSQ, Blue Energy


Keep an eye on a few market indicators

• OPEC’s growth strategy

• Pre-productive capital

• Oil inventory build up

• Capital intensity and costs

• Shift in demand

• Market developments

• Brexit impacts

• Drilling programs

• Transactions

• Supplier retrenchment

• Creative contracting

• Balance sheet transformation

• Policy actions

International Domestic


• Oversupply will endure for years

• The US steps up

• New markets emerging quickly

• QLD focus will be on reducing upstream capex and opex

• Capital constraints set scene for rapid price escalation

• Market shake out creates opportunities

Fundamentals for the gas sector are still strong, but capex and opex pressures are relentless

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