| The merger that wasn’t After their early-stage merger talks were disclosed in December, Santos and Woodside have now completely abandoned the negotiations. Santos shares initially fell 9% before recovering to close the day 5.8% down, while Woodside rose 0.5%. Woodside will continue on its path, but the question remains: what’s next for Santos to unlock value for shareholders? Santos’ most valuable assets are its shares in LNG projects, particularly PNG LNG but also GLNG and Barossa. Global demand for LNG is expected to continue for many years to come, and one of the stronger reasons for the merger with Woodside was that the merged company would have been the world’s fourth largest listed LNG producer behind Shell, Exxon, and Chevron. More adventurous options for Santos could include sale of the company to global LNG producers, but none has publicly emerged to date. A merger with Origin’s upstream and LNG assets could offer some value; for one thing, Origin has significant gas reserves in Queensland that could assist in filling up GLNG’s second train. It would also enable operational synergies for the CSG operations – something that was missing from the Woodside merger. However, the implications of an Origin merger for the east coast domestic market would be closely examined by the ACCC. US delays LNG project approvals The big news in the global LNG market this month was the announcement from the Biden administration that there would be a ‘temporary pause’ on pending approvals of LNG exports. The primary justification given was to allow time to update the underlying analyses for authorisations, which are five years old. Also mentioned was the administration’s stance towards climate change, the ‘perilous impacts of methane on our planet’, and the potential for LNG exports to impact domestic energy availability was also cited. It seems unlikely the decision will have a significant impact on the global LNG market or Australian LNG for the foreseeable future as it does not affect US LNG projects currently under construction. These projects will in total add 48 Mtpa in export capacity over the next four years. Venice Energy hits a snag Venice Energy’s LNG import terminal planned for Port Adelaide, South Australia hit a snag when it was reported that Origin Energy has decided not to exercise an exclusive agreement to underwrite the terminal, after determining it was unable to bear the risk as large gas users are unwilling to sign multi-year agreements. Venice Energy has subsequently announced that it has appointed CLSA to manage a process of project divestment. Monthly statistical summary In January, Australian LNG projects shipped 7.02 Mt (101 cargoes), less than the 7.25 Mt (105 cargoes) shipped in December. EnergyQuest estimates that Australian LNG export revenue in January was $6.80 billion, surpassing the $6.24 billion in December but reflecting a 20% decrease compared to January 2023. Overall, Australia’s January 2024 shipments were 82.6 Mtpa on an annualised basis, compared to 81.06 Mtpa for the calendar year 2023. In January, Queensland continued to import gas from other states, as it did in December and November, with the volumes in January slightly higher than in December, totalling 3.51 PJ compared to 3.47 PJ in December. Queensland’s short-term domestic gas prices (WGSH) in January were higher, averaging $11.21/GJ compared to $10.82/GJ in December. Southern short-term domestic gas prices decreased in January. Sydney averaged $11.28/GJ, compared to $11.34/GJ in December. Victoria averaged $10.80/GJ, down from $10.92/GJ in December, and Adelaide averaged $11.23/GJ, a decrease from $11.61/GJ in December. East coast electricity demand increased by 2% in January compared to the same period a year earlier. The coal share of generation remained steady at 58%, compared to 57% a year earlier, with lower generation in Victoria, but higher generation in Queensland and NSW. Gas’s overall share of the market decreased to 3.7% compared to 3.9% a year earlier. |
Information about the EnergyQuest Australian LNG Monthly is available by clicking here.