Australia’s Mega LNG Projects are in Serious Trouble
In the US, natural gas is dirt cheap. The price peaked in 2008 and has since collapsed. It remains below the cost of production, even today. Two natural gas drillers have recently buckled and declared bankruptcy.
In the international markets, natural gas is traded as Liquefied Natural Gas (LNG). There was a time, after Japan shut down its nuclear power plants in the wake of Fukushima, when prices, particularly for delivery in Japan and Korea, soared. And during this environment, a number of countries invested heavily into building LNG export terminals that convert natural gas into LNG.
In the US, this has been the story of Cheniere Energy, a company that has barely any sales. It’s mostly famous for always losing a lot of money and then raising even more money. It’s stock has soared from less than $2 a share in 2009 to over $80 a share late last year and earlier this year, giving it a ludicrous market capitalization of nearly $20 billion. And it has a breath-taking $18 billion in debt. But the dream is deflating, and it closed at $52.40 today.
It’s deflating because it’s a dream, and dreams always deflate sooner or later. And because prices in the rest of the world have collapsed as well.
And because in the US, current low prices are sending producers into bankruptcy. This works for a while, until it doesn’t. At some point – when the money runs out – they stop drilling. And they can’t restart until prices rise significantly. Rising gas prices in the US and dropping LNG prices in the international market crimps any possibilities for Cheniere’s math to work out.
Australia is in the same boat, but to an extent that dwarves US efforts. Here’s Mark Hansen in Australia to shed light on just how ugly the LNG debacle is getting down under.
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