LNG boom fuels Australia hopes – FT.com

The flame flickering on top of a gas flare tower on Curtis Island in Gladstone is a symbol of a rising power in the liquefied natural gas market as three huge coal seam gas plants prepare for switch on.

In Asia, where governments are seeking cleaner energy sources to complement coal and oil, LNG is highly prized. For Australia, it has changed the country’s energy landscape.

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“Australia is poised to become the world’s biggest exporter with 84m tonnes of LNG capacity coming into production by about 2018,” says Rod Duke, head of LNG at Santos, an Australian energy company.

“The Gladstone projects will be the main contributors,” he says.

Energy companies have invested $200bn in Australian projects over the past decade, including three LNG plants in Gladstone operated by consortiums led by the UK’s BG Group and Australia’s Santos, and Origin Energy.

The plants are the first in the world to convert coal seam gas to LNG. BG Group’s plant is due to go into production within weeks while the other facilities will be switched on next year.

Coal seam gas

It is the biggest building site in Australia with more than 13,000 employees toiling away over five years to construct the world’s first coal seam gas LNG plants.

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But as the country prepares to overtake Qatar as the world’s biggest LNG exporter, Australia faces competition from US shale gas, a proposed pipeline between Russia and China and rising costs.

This has caused investors to press the pause button on a further $100bn plus planned projects as they consider which country offers the best return on LNG investments.

“We think it will be very difficult for new green field Australian projects to compete equally with those from the US, particularly as the buyers are now looking for lower LNG pricing,” says John Hirjee, Deutsche Bank analyst.

A shale gas revolution in the US, which is forecast to see LNG production treble by 2035, is prompting companies such as Cheniere Energy and Sempra Energy to export to Asia. More than a dozen projects in Africa and Canada are also planned, which provides Asian buyers alternative and cheaper supplies.

Deutsche says current contract prices to ship LNG from Australian to Japan are about $14-$15 per million British thermal units whereas the equivalent price of US LNG is $11.84.

Increased competition has hit Chevron’s Gorgon project in Western Australia, which is scheduled for completion in 2015. So far it has sold just 65 per cent of gas in 20-25 year long term contracts, compared with a target of 85 per cent.

“With the degree of uncertainty that there is about US exports and the size of US exports, I think you can understand why buyers might want to wait a little bit to see how that all lands out before going forward to secure longer-term contracts,” Pat Yarrington, Chevron’s chief financial officer, said last month.

via LNG boom fuels Australia hopes – FT.com.