As the price of liquefied natural gas (LNG) is tied to oil, a prolonged period of lower prices could have severe implications for Australia’s $50 billion-a-year LNG export industry, and imperil the viability of billions of dollars of projects awaiting final decisions off the coast of Australia due to lower-than-expected rates of return.
“This is the first of what we expect to be a series of announcements by Australian exploration and production companies regarding a reassessment of the carrying value of their oil and gas assets under a lower oil price environment,” said Gordon Ramsay, a Sydney-based analyst with the Royal Bank of Canada.
Mr Ramsay said Oil Search’s write-down decision was “prudent” due to the lower price outlook and the uncertainty surrounding a key plank of a major growth project in Papua New Guinea following the breakdown of talks with the nation’s government.
Crude oil futures have been trading lower, around $US42 a barrel, ahead of a mid-week meeting where Saudi Arabia-led Organisation of Petroleum Exporting Countries (OPEC) and its allies including Russia are expected to decide to ease their production cuts and modestly boost output from next month as lockdown restrictions start to relax in some parts of the world.
Luke Parker, analyst with Wood Mackenzie, said the series of write-downs by global oil majors, contained messages of “stranded assets” – those which would never be fully developed – and signified a major upheaval playing out in the oil and gas industry.
“Demand might still grow from here, and many companies are still chasing a share of that growth,” Mr Parker said following Shell’s write-down warning on June 30.
“But make no mistake, the corporate landscape is changing, and the majors are changing with it.”
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