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Australia is set to be the leading LNG exporter in the world, potentially displacing Qatar from the number one spot and surpassing Indonesia and Malaysia by the end of this decade.
The country's role in the global LNG trade is imminent. Australia is the forth-largest gas exporter accounting for almost 8 percent of global exports, and for over 20 years, has been supplying gas mainly to Japan and China, with the remainder exported to the Middle East.
This has been made possible by its abundant gas resources and the development of offshore conventional gas resources and coal seam gas (CSG). Australia's proximity to Asia also provides its export sector with a large and expanding nearby market.
LNG is expected to grow at a rate of 6 percent per year. Australia will ship as much as 100 million tonnes of LNG by 2020, and Africa holds the key to reserves with more than 250 trillion cubic feet of gas. Together, the two regions may threaten existing gas monopolies and piped gas providers, and become keysuppliersto Asia.
Already, the gas boom in the US and Asia's rise has claimed its first victim. Gazprom withdrew from its US$20 billion Shtokman Artic venture, writing off its dominant position in the global gas market and its ability to set LNG prices in Europe and Asia.
"All parties have come to the conclusion that the financing is too high to be able to do it for the time being," Vesevelod Cherepanov, Gazprom's head of production, was quoted as saying.
Meanwhile, China has declined piped gas contracts from Moscow, shifting its focus on constructing LNG import terminals. Ukraine, too, is looking to cut gas ties with Russia, announcing a US$12 billion deal with ExxonMobil and Shell to develop a Black Sea gas field.
Australia is expected to go head-to-head with Africa. The discovery in Africa of the world's biggest gas finds in a decade threatens to undo the country's investment plans. It has prompted the possibility of energy companies such as Royal Dutch Shell to scale back on projects to build LNG export plants in Australia, in favour of the finds along Africa's east coast. Competitively-priced US volumes may also impact the viability of the proposed projects in Australia.
"Because of the volume that's been discovered in East Africa, the economics look to be able to challenge Australian LNG projects, given the cost inflation they have experienced," RBC Capital Markets analyst Peter Hutton told Bloomberg recently. "All companies will have that on their radar."
The LNG projects in Australia face further risks. Tight environmental regulations, scare labour supply and infrastructure bottlenecks may delay planned projects. Low project costs in Africa and a strengthened Australia dollar are the biggest threats to Australia's market share in China and India, where energy consumption is forecast to rise more than 60 percent by 2030.
Domestic gas users in Australia are also not waving pom poms--one million jobs depend on the country's competitive advantage in energy, which is being lost as gas producers focus on maximising exports.
The Economist Intelligence Unit (EIU), however, dubs the next decade an Australian one.
In its new report,Tankers on the Horizon: Australia's Coming LNG Boom, Australia can expect a much greater role as a key supplier to the Asian LNG market. Ample resources in the 11th largest holder of global gas reserves can even account for North American and East African competition in the longer term, and pipe through domestic and international risks.
"There is real competition in the 2020 time frame," said CEO atSantos,David Knox."But we can compete, provided we keep our productivity up, our cost base under reasonable control and we can unlock the resources," he added.
Australia is most likely a key contributor to the International Energy Agency (IEA)'s Golden Age of Gas, but only time can tell if it will instead sit on a silver throne.
This article was published in the September 2012 issue of the Economist Intelligence Unit. The summary of the full report can be found here.
BY : Economist Intelligence Unit