A drive to reduce emissions that is spreading faster than the coronavirus in the energy industry could see assets worth up to $17 billion put up for sale in Australia, Wood Mackenzie analysts projected this week. There are already some $11 billion in assets being sold in the country, as struggling oil and gas companies, including the supermajors, seek to offload all non-essential business. Many of these assets may not find buyers and may remain undeveloped if the energy transition takes the upper hand. This will likely put an end to Australia’s regional energy dominance ambitions.
“BP, Total and Shell all hold Australian LNG assets with high carbon footprints, alongside ambitious goals to increase their global LNG portfolios,” Wood Mackenzie’s analysts said in a report on M&A trends in Australia. “What will be more important – hitting growth targets or emission goals? The two do not seem mutually compatible, and Australia is on the frontline.”
LNG has been identified as a crucial member of the global energy mix in the long term as it replaces oil alongside renewables and hydrogen. The supermajors are definitely not giving up on gas production. Neither is Australia: last year, the country overtook Qatar as the world’s largest exporter of liquefied natural gas in terms of capacity. Last month, former Dow chairman Andrew Liveris, who advises the Australian government, said the country could become a net-zero emitter by 2050 by producing—and using domestically—more natural gas. Related: Shell Shuts All 9 Of Its Gulf Of Mexico Oil Platforms Ahead Of Hurricane
Yet many of the LNG assets operating in Australia, according to Wood Mac’s analysts, have a higher carbon footprint than LNG projects in other parts of the world. The supermajors’ Australian LNG assets are up to twice as carbon-intensive as their global average, senior analyst David Low said in the new report.
But does this mean they might want to sell them?
That’s hardly the case. All of these projects required massive investments, ran into delays and cost overruns, and were generally a headache until they were completed. And now, with a gas price rout on top of the oil price rout, asset valuations are not exactly the best for sellers. True, LNG demand is expected to rebound more strongly than oil demand, but it will take a while before this happens and the current glut is cleared.
Supermajors and their partners in Australia have so far poured $200 billion into the seven massive LNG offshore projects that brought Australia’s export capacity to 88 million tons a year. Two of them are still not working properly: Shell’s Prelude was shut down in January because of technical problems, and Chevron’s Gorgon project has suffered damage that requires the shutdown of all production trains, Bloomberg reported in early September.
It is questionable whether Shell or Chevron would be willing to just drop the whole Australian LNG thing and go home when so much has been invested already. Perhaps, if asset prices were more attractive for sellers, there may have been a chance for a change in ownership in this space, but right now is not the best time to do that.
This, according to Wood Mac, could change over the next 12 months as the production of oil and gas declines because of the crisis and prices, hopefully, start climbing more strongly. On the other hand, higher prices could simply make the current owners of Australia’s LNG projects stick with them and reap the profits after they solve their technical problems. How would that stack up against the companies’ and Australia’s energy transition targets? Not too well if the carbon footprint of these projects is so much higher than their global average. It would be up to Australia and the companies to decide which is more important, eventually.
By Irina Slav for Oilprice.com
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