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Australia’s role in the golden age of gas

LNG Industry,


The golden age of gas

Are we entering a golden age of gas? If we are, Australia could be a major contributor to it with a booming LNG export sector in the second half of this decade, a new report by the Economist Intelligence Unit says. Indeed Australia could become the biggest supplier of LNG in the world within a decade – although the industry faces several potential constraints that could slow the pace of its growth.

Australia's gas production is set to more than double within the next eight years, which would contribute to making the country the biggest global supplier of liquefied natural gas (LNG), the report says.

However several potential constraints loom, including high project costs, scarce labour supply, a higher Australian dollar, infrastructure bottlenecks and tight environmental regulations, according to the ‘Tankers on the Horizon: Australia's Coming LNG Boom’ report.

Increasing LNG capacity

The Economist Intelligence Unit forecasts that Australia’s gas production could more than double by 2020, contributing to a steep increase in Australia's LNG capacity.

If Australia did reach its anticipated LNG capacity by 2020, it would go from being the world’s fourth-largest LNG exporter by volume - behind Qatar, Malaysia and Indonesia - to being the largest.

Most of Australia’s LNG exports currently go to Japan (around 73%) and China (19%), with the remainder exported to South Korea, Taiwan and India.

However, Australia is on the cusp of dramatically expanding its role as an LNG supplier to Asian markets this decade.

It is well-placed to expand its exports to the Asian LNG market, which is the largest regional market for LNG. Asia accounts for 60% of global LNG imports, and will also be the fastest-growing LNG market in coming years.

The seven LNG projects already under construction are supported by supply agreements with Asian buyers, which means customers are locked in for the longer term.

Obstacles to an LNG boom

However there are several potential obstacles to an LNG boom.

Some LNG projects have faced cost blowouts and there may be possible delays to start dates for some projects, due to a combination of factors, including the impact of the high cost of labour and raw materials, additional infrastructure costs, a stronger Australian dollar and meeting tighter environmental standards.

There are also growing environmental concerns about onshore coal seam gas (CSG, also known as coalbed methane) extraction for LNG projects in Queensland.

CSG-to-LNG projects have faced opposition from some farming communities and green groups over the practices used in drilling for CSG, because of the potential impact on the environment and on land use for agriculture.

This is unlikely to stop already committed CSG-to-LNG projects, but tighter regulations put in place in response to public concerns will increase their cost.

Further potential risks to Australia's LNG sector in the longer term include competition from the emergence of several North American and East African LNG suppliers. Meanwhile, local industrial consumers of gas are demanding that a certain portion of gas production be earmarked for the Australian market.

Australia's new carbon tax will only have a modest impact on the LNG sector, due to exemptions that have been put in place for LNG exporters. The tax, levied at $23/tonne, will have a greater impact on the coal industry and power generation sectors.

Conclusion

The Economist Intelligence Unit believes proximity, low political risk and available resources will enable Australia to maintain a key role in supplying the Asian market.

This will be the case even accounting for North American and East African competition in the longer term, and even if Australia's LNG capacity expands only modestly beyond the current list of seven projects under construction.

To download the report, please visit www.eiu.com/australiagas

Written by Peter Kiernan, Energy Analyst, the Economist Intelligence Unit.

Edited by Callum O’Reilly

Read the article online at: https://www.lngindustry.com/lng-shipping/29082012/australia_lng_exports_golden_age_gas_125/


 

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