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Dave Forest

Dave Forest

Dave is Managing Geologist of the Pierce Points Daily E-Letter.

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Major Win For LNG Producers Thanks To Oil Price Plunge

Brief, but very interesting note this week from world LNG-hotspot Australia. Where it appears the environment is getting better for new project development - despite an overall softening in commodities prices.

In fact, precisely because of that reason.

Australian officials told a natural gas industry conference that costs in the domestic petroleum sector have been plummeting. Because of a pullback in sector activity, triggered by currently-low oil prices. Related: Beyond Iran And Pakistan: 7 Nuclear Wannabes

John Ryan, associate secretary at the Department of Industry, said at the Australian Domestic Gas Outlook Conference in Sydney that the scale of cost reductions has been extremely dramatic. Noting that an exploration project that formerly cost A$20 million is today running at just A$9 million in costs.

Ryan said that the bulk of these cost savings have come over the last 12 months. A time when local operators have cut capital spending by an estimated 20%, in the wake of lower oil prices. Related: Three Triggers That Will Send Oil Crashing Again

All of these figures suggest that costs in the Aussie petroleum sector have come down more than 50%. Representing a major win for producers in increasing profitability.

Of course, for liquids-focused producers, much of this gain will be offset by today's lower oil prices. But for firms focused on the more-stable natural gas market, lower costs could help lift profits substantially. Potentially making this a spot worth looking at for new projects. Related: The $6.8 Billion Great Wall Of Japan: Fukushima Cleanup Takes On Epic Proportion

All the more so given Australia's mega-build out in LNG projects over the last few years. Which has helped to create, train, and equip a skilled labor force in the natural gas sector - which could become a substantial asset for new project developers. Especially at 50%-discounted prices.

Watch for any announcements of new projects here. And further data on costs, which could fall further if activity continues to languish.

Here's to the silver lining,

Dave Forest

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