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Editorial comment

In last month’s LNG e-newsletter, I discussed the potential rise of Australia as the new international LNG super player. Whereas the USA is revelling in the domestic security of energy supply that its newly viable shale gas deposits afford, Australia’s unconventional gas has real potential to serve an international market.

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Backed with multi-million dollar investment from companies such as BG Group, ConocoPhillips, Santos and Petronas, Australia will see its coalbed methane converted into LNG and shipped to China, and other Asian destinations. With the LNG market continuing to be characterised by oversupply, Australia is in a good position to take advantage of the predicted demand recovery in the Pacific Basin this year.

With China poised to be one of the world’s top LNG importers, and Australia pushing ahead in global LNG export, it is clear that the future of the LNG industry (and coal industry for that matter) will be played out, for the most part, in the Asia-Pacific region. But there are also some interesting developments underway in the West.

There is now a rush to repeat the USA’s shale gas bonanza in Europe. ExxonMobil, BP and Royal Dutch Shell are all hastily making inroads into exploiting Europe’s shale gas potential. Self-sufficiency in European gas supply would bring with it the relief of reduced dependence on Russia, but could seriously harm the bottom line of LNG exporters such as Qatar. With Europe’s new regasification terminals, the continent has thus far played an important role in receiving LNG imports, alleviating some of the oversupply choking the industry. However, this year it could struggle to expand further. For an industry such as ours that rests on the need to transport natural gas globally, an era of self-sufficiency (as advanced by the shale gas developments) can be disadvantageous.

In the midst of the global gas glut, we can see the dilemma of whether to ‘retain’ or ‘export’ being played out in the Alaska Pipeline Project. As part of the Alaska Gasline Inducement Act (AGIA) TransCanada Corp. and ExxonMobil Corp. will develop a natural gas pipeline and have filed for open season. It now seems that converting to LNG and transporting to international markets is by far the most cost-effective use of the gas from this project, since the lower 48 states no longer have the need for Alaska’s gas.

There are now estimates that the USA in fact holds enough domestic reserves of gas to last at least another 100 years. 2010 will no doubt see an increase in oversupply of LNG. However, energy hungry Asian markets and continuing cold snaps in the northern hemisphere should, and could, go some way to restoring a supply-demand balance.