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Irina is a writer for the U.S.-based Divergente LLC consulting firm with over a decade of experience writing on the oil and gas industry.

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Local Gas Shortage Threatens Australia’s LNG Dream

Australia, which last year in November overtook Qatar as the world’s top LNG exporter, will now need to start importing the commodity as some parts of the country face a shortage of natural gas.

The ironic situation is the result of two oversights, the first of which was that most of the LNG production capacity that came on stream in the last few years was directed abroad.

As the International Energy Agency put it last year, "Increasing LNG exports have created a tight supply in Australia's eastern market, which is characterized by weak regulation, poor transparency and low liquidity. Market inefficiencies need to be addressed swiftly and transparency improved rapidly for domestic consumption and LNG exports to successfully coexist."

Yet there was also another reason for the shortage that is looming over southern Australia, and it is an overestimation of the gas reserves that are being exploited there. Australian consultancy EnergyQuest last month warned in a report that Queensland would need to shut down a third of its US$59-billion (A$84 billion) LNG production capacity because the resources will run out faster than initially expected.

“Crunch time is expected by 2025 and will be exacerbated by potential political pressure for Gladstone LNG operators to divert gas to the domestic market,” the consultancy also said.

It’s no coincidence, then, that the Queensland authorities approved the first large-scale LNG project in quite a while in February: a joint venture of Shell and PetroChina that will tap an estimated 3 trillion cu ft of natural gas reserves in the Surat Basin. Yet even this won’t solve the domestic market shortage as transporting gas from Queensland to the southern states may be prohibitively expensive.

There are five LNG import projects in the works, Reuters’ Sonali Paul reported in a recent story. These should be up and running between 2021 and 2022, feeding a market for about 7.8 million tons of LNG worth US$3 billion.

Critics of these import plans say this is too much. “Based on the five proposals to date, Australia now appears to be planning to overbuild LNG import capacity in response to an overbuild of LNG export capacity,”  Paul quoted Credit Suisse analyst Saul Kavonic as saying. Related: Supertanker Rates Soar As U.S. Oil Exports Hit All-Time High

“We definitely would see a rationale for one terminal to give another source of gas into the east coast market,” Wood Mackenzie’s Asia gas and LNG director Nicholas Browne said. “We think one terminal would be sufficient till the mid to late 2020s.”

The federal government is also not entirely convinced Australia needs so much import capacity. It doesn’t even seem entirely convinced the country needs import terminals at all, or at least it didn’t last year, when the Department of Industry revised down its forecast for a gas shortage in the southeastern states, now expecting it to make an appearance no sooner than 2030.

Yet demand for LNG will begin exceeding supply before that, in 2022, and even if LNG import terminals are built, finding cheap enough LNG to import may become tricky. In such a situation, chances are the government may press producers to divert more of their gas to the domestic market, squeezing exports and export revenues in a classic “Can’t eat the cake and have it too” scenario.

By Irina Slav for Oilprice.com

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  • Bill Simpson on March 07 2019 said:
    Sounds like they caught 'Canada Can't Get It Done Disease' down under.
    They ought to import some Texans. They will show them how to 'get er done'.

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