Australia’s resource and energy export earnings are forecast to set a record of $299 billion in 2019–20, an increase of $18 billion from 2018–19 according to the latest Resources and Energy Quarterly (REQ).

Australia’s LNG export volumes are forecast to rise from 75 million tonnes in 2018–19 to 81 million tonnes in 2020–21, as the last two projects in Australia’s recent wave of LNG investment ramp-up, before edging back down to 80 million tonnes by 2024–25.

However, Australian LNG export prices are expected to decline in 2020, before gradually rising then falling again, tracking oil price-linked contract prices (at which most Australian LNG is sold). Asian LNG spot prices are forecast to recover from current record lows as the market rebalances, before declining as a new wave of LNG projects ramp up.

Therefore, the real value of Australia’s LNG exports is forecast to decline from $51 billion in 2018–19 to $49 billion in 2019–20 and $44 billion in 2020–21, and remain in the $44 to $47 billion range to 2024–25.

A range of factors have continued to place downward pressure on Asian LNG spot prices. Global LNG capacity has rapidly expanded over the last two years, with projects ramping up in Australia, the US and Russia. At the same time, demand growth has been slowing from the traditional Asian buyers. Weak demand has been further exacerbated by a warmer-than-usual northern hemisphere winter, and the impacts of COVID-19 in China.

Earlier this year, COVID-19 reduced gas demand in China, with LNG imports more heavily affected than domestic gas production and pipeline imports. There were reports of some LNG cargoes destined for China being diverted, and some Chinese LNG buyers issuing force majeure notices to LNG suppliers (although some these were reportedly rejected), driving Asian LNG spot prices to a new record low of US$2.68 per MMbtu in mid-February.

The Asian LNG spot price averaged US$3.94 per MMbtu (A$5.47/GJ) in the first two months of 2020, 31 per cent lower from the December 2019 quarter and 47 per cent lower year-on-year. Prices are forecast to remain low over the first half of 2020, before lifting in the second half of the year, and average US$3.70 per MMbtu (A$5.10/GJ) in 2020.

However, this forecast is sensitive to how quickly China’s economic activity recovers from the impacts of COVID-19. While Asian LNG spot prices are forecast to recover from the current record lows, ongoing overcapacity in global LNG markets is expected to constrain the extent of any price recovery over the next two years.

After 2021, rising demand is expected to gradually close the gap on expanding global production capacity and support a rise in the Asian LNG spot price.

LNG spot prices are expected to increase to US$6.30 perMMbtu (A$8.30/GJ) in real terms in 2023, reflecting a tighter global market. In the final years of the outlook period, a new wave of LNG projects is expected to drive growth in LNG capacity. A surge in global LNG supply is expected to drive Asian LNG spot prices lower to US$4.70 per MMbtu (A$6.20/GJ) in real terms by 2025.