Santos chief executive David Knox does not feel threatened by the US liquefied natural gas market, saying the Henry Hub price was no competition for Australia’s proximity to buyers.
Speaking on Thursday at a Brisbane Mining Club lunch in Brisbane, Knox said Australian operators were letting insecurity get the better of them.
“The talk I hear about Asia moving towards a so-called ‘cheaper’ US Henry Hub price and away from the oil-linked contracts we have secured in Australia deserves a brief mention,” he said.
“What I will point to is a simple comparison.
"If you use a Henry Hub price of say $6 to $7 in 2020, by the time you add the 15% capacity mark up, the liquefaction and transportation, and the cream that traders will take on top of that, then you will see that you have landed US LNG into Japan or Korea at around $14 to $14.50.
“Now, this landed price is pretty close to the price of a conventional oil-linked project, which at a $100 (per barrel) oil price is circa $14.50.”
He said the perception that US LNG was going to cut at Australia’s bottom line was not necessarily true.
Knox believes buyers will look for diversity both in origin of supply and price.
He added Santos was well positioned to cash into growing Asian markets and was confident US growth would not majorly impact this.
“Despite a slowing in growth in Asia, urbanisation continues to see the equivalent of 10 cities the size of Brisbane being created each year,” he said.
“And this growth drives investment, consumption and energy demand to the point where it is estimated that Asia’s energy demand will surpass the rest of the world combined by 2030.
“And in Asia this growth is even more pronounced, with gas demand projected to grow at just over 3% per year out through 2030, which is more than double the rate of the rest of the world combined."
Santos said it was committed to its plan of expanding into Asia to tap into the growing market using its LNG projects.
“Papua New Guinea LNG is the first of our new LNG projects to come on line, with the first cargoes being shipped to Japan just last week on the Spirit of Hela tanker.
“We expect the project to ship a cargo every four to six days for 30 years to buyers in China, Taiwan and Japan.”
The company’s Gladstone LNG project is more than 80% complete and on track for first LNG in 2014, delivering about 11% of Korea’s gas needs and 9% of Malaysia’s for the next 20 years.
“Santos will play an important role in delivering energy to our region for many years to come. And there is every reason to remain confident in the market to sustain this industry.
“Queensland is of course at the heart of this industry.
“With three projects in construction and nearing completion, this state will be a significant force in global LNG markets."