Is Australian LNG Imperilled by US Shale Boom?

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Monday, November 25th, 2013
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A leading mining equipment supplier says the shale-driven resurgence of the US energy sector could have a dire impact upon Australia’s LNG and coal-seam gas developments.

Keith Cochrane, chief executive of FTSE-Listed Weir Group, said that developments in North America’s energy sector have already had a shock impact on global coal prices, and will continue to rattle international markets as the US emerges as the world’s biggest producer of fossil fuels on the back of new extraction technologies.

keith cochrane

Keith Cochrane

Speaking to The Australian during a visit to Weir’s Australian operations, Cochrane said that Australian gas producers can no longer “close [their] eyes” to developments in North America, and the potential impacts of a surge in US fossil fuel exports.

According to Weir the history of the coal sector during just the past five years, during which period global prices have been severely impacted by the diversion of product formerly destined for US power plants to China and India, prove that any corner of the energy sector can be subject to abrupt and unanticipated changes.

On the LNG front, key importers in South Korea and Japan have already inked long-term agreements with US terminals, while export volumes from North America would further increase in the next several years as Canadian

Weir advises Australian producers to give full consideration to the ramifications of developments in North America, whose impacts will be

Despite Cochrane’s concerns about the possible impact of the shale revolution on Australian coal-seam gas and LNG projects, Weir nonetheless plans to raise its exposure to and support for the sector.

The Weir CEO said that CSG and shale has the potential to provide an environmentally friendly source of fossil fuels in Australia, despite the strident misgivings of both the greens and broadcaster Alan Jones, and could enable the country to achieve self-sufficiency in terms of its energy needs.

Glasgow-headquartered Weir Group is one of the UK’s leading engineering firms, and a key supplier of pumps to the international mining and energy sectors. The company has heavy exposure to the US shale sector, having spent around $1.77 billion buying up businesses that supply their products to the industry.

Cochrane’s remarks arrive just as the outlook for BHP Billiton’s US-based shale operations has been dramatically lifted by expectations of record-breaking recovery rates.

Devon Energy, BHP’s partner in the development of the Eagle Ford shale formation in southern Texas, has announced that it expects the recovery rates for oil in the shale to reach 20 per cent, as compared to the industry average of 7 per cent just a year ago.

The rates will be the highest in the US and yield a major reduction in production costs, while analysts already anticipate a significant upgrade to consensus earnings and cashflow for the project on the back of Devon’s new data.

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