Australia is on track to become the world’s largest LNG exporter by next year. Home to several giant offshore projects such as the Gorgon, Wheatstone, Prelude, and Ichthys, the country is fast closing in on the current top exporter of the fuel, Qatar. But unlike Qatar, Australia has not been able to fully enjoy this LNG boom. In fact, at least one part of the country is suffering an LNG shortage that has made imports a very urgent need.
Meet Queensland, home of the Australian Pacific, Queensland Curtis, and Gladstone LNG projects, with a combined annual production capacity of 25.3 million tons. Like its East coast neighbor Victoria, Queensland is standing on the brink of a chronic affordable LNG shortage resulting from the trebling of demand after the start of the Queensland projects, which pushed prices significantly higher, helped by declining production from legacy gas fields in the region and the fact that a lot of the LNG produced from the three projects are locked in long-term contracts.
Last year, the Australian government introduced a Domestic Gas Security Mechanism, allowing it to force LNG exporters to divert certain amounts of the fuel for the domestic market in case of a shortage. Apparently, however, this is not enough, not to mention that far from everyone is happy with this kind of interference in the LNG industry. As industrial gas consumers along the East coast grapple with a more than twofold increase in LNG prices and 10 percent of them are at risk of having to shut down operations, alternatives have been sought urgently.
Exploring the idea of LNG exports into the world’s second-largest exporter was only a matter of time. In January, Reuters reported that a consortium of Australian and Japanese companies was planning to make the final investment decision on an LNG import terminal on the east coast to alleviate the problem. Related: The Top Performing Stock Of The U.S. Shale Boom
The consortium, dubbed Australian Industrial Energy, includes Japan’s JERA and Marubeni Corp. and Squadron Energy, an investment vehicle of local mining billionaire Andrew Forrest. The head of the consortium, James Baulderstone, recently told Bloomberg in an interview that “We have the world’s largest buyer of LNG who is out on the market on our behalf and able to give us a very good line of sight as to where the opportunities are.”
Yet, it is still unclear what role JERA, the world’s largest buyer of LNG, will play in the project and when it will start. What is known is that later this month AIE should pick a location for the terminal. Meanwhile, IG Partners has proposed another LNG import terminal in South Australia, to supply fuel to a power plant but also possibly to sell some to local LNG consumers. According to Bloomberg, Mitsubishi Corp. may join this project.
So, it looks like the world’s future top exporter of LNG is being forced to turn to imports from its biggest client to solve its domestic gas shortage problem. This may seem weird at first, but as some analysts noted amid the 2016 shortage, the government was “asleep at the wheel” when it was granting all those offshore project and export licenses. Related: Expert Analysis: What’s Next For Russian Oil
However, imports are not the only solution. Another is a proposed US$3.74-billion (A$5-billion) pipeline that will bring LNG from the Western Australia offshore gas fields to the east coast. This pipeline, according to Rystad will be a much cheaper alternative to LNG imports as LNG prices are set to rise on strong demand and a slowdown in new production capacity additions.
It is sadly ironic that Australian industrial gas consumers are being forced to buy more expensive imported LNG instead of tapping abundant local reserves, as these have been committed for exports. But what’s worse is that things are not going to get better: prices are seen rising for at least the next ten years, as cheaper gas reserves get depleted and production costs for new deposits rise.
By Irina Slav for Oilprice.com
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