That not-so-stellar progress of the Australian gas industry

The Australian 14 January 2015:

PLUNGING  prices for liquid natural gas are dashing state and federal expectations of a revenue bonanza from the country’s massive new gas projects, with at least $2 billion being stripped from tax and royalty forecasts.

The seven giant projects being built at a combined cost of about $200bn represent the largest capital investments made in ­Australia and are still expected to be financially viable.

But as prices tumble, the ­industry’s export revenue could be as much as $20bn a year lower than was expected a year ago.

The mid-year budget update released just before Christmas had factored in the oil price falling by a third, with the drop feeding through to LNG prices. The fall has surpassed 50 per cent.….

From a sovereign risk perspective, it is essential that these projects continue to be able to service the foreign debts that have largely financed their construction. Industry analysts believe the projects will still be able to cover their operating and financing costs at current prices, but they believe they would not have been built if current ­prices had prevailed when they came before boards for approval.

“If you knew then what you know now, some may not have proceeded because the rate of ­return on our estimates are below what we think is needed to justify going ahead, but when you’re half-way through the construction, you’re also half-way through the money and there’s no going back,” UBS energy analyst Nik Burns said.

The recent round of state and federal budget updates downgraded estimates of royalty and resource tax revenue from the gas industry, to reflect the weaker price outlook, but prices have fallen a lot further since budgets were ruled off before Christmas…..

For the very junior cowboys in the coal seam gas section of the industry this is not good news.

Some, like Metgasco Limited, are already facing strong headwinds and share price continues to reflect this.

Three month chart ordinary shares sold on the Australian Stock Market (ASX)

Twelve month chart ordinary shares sold on the Australian Stock Market (ASX)

Ten year monthly average ordinary shares sold on the Australian Stock Market (ASX)