Australian liquefied natural gas projects are receiving lower prices for the fuel because of increasing competition for customers, Citigroup Inc. said.
ConocoPhillips and partner Origin Energy Ltd. are initially set to commit to just one LNG production unit at their Queensland project “given lack of demand,” Citigroup analysts including Sydney-based Mark Greenwood wrote in a report.
“We are beginning to see more signs of a buyer’s market,” the report said. Asian customers are also demanding bigger stakes in the Australian projects when negotiating supply contracts, according to the report dated yesterday.
Australia and Papua New Guinea have 16 LNG ventures “jostling for position” to tap Asian demand for cleaner-burning fuel, Citigroup said. The Origin and Conoco project, Australia Pacific LNG, is among A$200 billion ($192 billion) of proposed ventures in the country, according to figures from the Australian Petroleum Production & Exploration Association.
The Origin and Conoco development is likely targeting China Petroleum & Chemical Corp., known as Sinopec, and Petronet LNG Ltd. of India as potential customers, Citigroup said.
Tim Scott, a spokesman for Origin in Sydney, said the company doesn’t comment on “market speculation.”
Origin, Australia’s second-largest electricity and gas retailer, has reserves to support two production units and expects federal and state approvals in the fourth quarter, it said in a presentation last week. Origin aims to be “ready” for a final investment decision at the end of the year, the company said.
Origin and Houston-based Conoco may struggle to sell enough LNG this year to justify two processing units, John Hirjee, an analyst at Deutsche Bank in Melbourne, said in August. The companies may make a decision to proceed with the venture as late as mid-2011, he said.
Origin was little changed at A$15.94 by the 4:10 p.m. close in Sydney. The benchmark S&P/ASX 200 Index fell 0.4 percent.
“New LNG contracts are being signed at increasing discounts to oil parity,” the Citigroup analysts said. “There is an abundance of proposed capacity and numerous LNG projects competing head to head for LNG contracts.”
Royal Dutch Shell Plc is likely to sell fuel from the proposed Prelude project in Australia to Korea Gas Corp. and approve the venture for development in the first half of 2011, the analysts said. Shell may sign an agreement with Nexus Energy Ltd. to add reserves from the Crux project off northwest Australia to the Prelude floating LNG venture, they wrote.
Chevron Corp. may arrange gas supplies from Hess Corp. to support an expansion of its proposed Wheatstone LNG project in Western Australia, the analysts said. “We think Chevron is in a good position to negotiate a deal with Hess.”