COLUMN-When insanity makes sense. Australia's best option is LNG imports: Russell
(Repeats item with no changes. The opinions expressed here are
those of the author, a columnist for Reuters.)
* GRAPHIC: Australia's domestic natural gas market: https://tmsnrt.rs/2Lcqprj
* GRAPHIC: Map of Australia's proposed LNG import terminals,
By Clyde Russell
SYDNEY, March 6 (Reuters) - Australia has painted itself
into a corner with its natural gas industry and faces the stark
reality that there are no easy choices to alleviate the dual
problem of a looming supply crunch and the associated higher
Australia is far from the first country to find itself with
an energy issue, but it is unusual insofar as the country is
about to become the world's largest exporter of liquefied
natural gas (LNG), and still it can't get its policy settings
right to ensure domestic supplies.
It sounds counter-intuitive and somewhat bizarre, that a
country that in 2019 will export nearly 80 million tonnes of LNG
finds that the best solution to its domestic supply crunch is to
start importing cargoes of the same super-chilled fuel.
There was grudging acknowledgement at this week's Australian
Domestic Gas Outlook (ADGO) conference that LNG imports were
likely the "least worst option", as one of the delegates put it.
In tracing the story of how Australia reached this point, a
tale emerges of poor policymaking, overly ambitious LNG projects
and a failure of natural gas users to realise that the market
dynamics were permanently shifting.
Much of the blame for the domestic natural gas problem is
settled on three LNG plants built in Queensland state over the
past seven years that tripled the amount of gas needed in the
eastern Australia market.
These three plants, with a combined capacity of about 25
million tonnes a year, were planned and executed on the basis
that they would use their own reserves as feedstock.
These reserves themselves were somewhat controversial, being
based on coal seams, and while nobody doubts the engineering
achievement of building three LNG plants based on a new type of
natural gas, many now question the wisdom.
The three ventures were built more or less at the same time
and didn't engage in any cooperative sharing of infrastructure,
partly because of the difficulty in aligning the interests of so
many various partners and partly because the authorities
believed in a competitive gas industry.
The net effect was that while the three projects were
responsible for developing a massive new natural gas resource,
they also sucked up the skills, capital and appetite from the
rest of the industry to explore for gas for the domestic market.
FIELD DECLINES, GREEN OPPOSITION
At the same time that Queensland was developing this
world-first LNG industry, cheap offshore natural gas from
Australia's southern coast was declining, after providing a
low-cost fuel for industry and retail customers for more than 40
While new fields in the Bass and Gippsland offshore acreages
are still planned, the new reserves will be more expensive to
develop and process, given the different nature of gas in the
now harder to reach fields.
A third leg to the problem is the mounting environmental and
farming opposition to onshore natural gas development, which has
led to bans and moratoriums being placed on projects in New
South Wales and Victoria states, Australia's most populous and
most industrialised regions.
The effective sequestering of onshore reserves is
exacerbating a looming supply shortage, likely in the next few
years when declining offshore fields, coupled with depletion of
some of the fields in central Australia, mean not enough natural
gas will be available in those two southeastern states.
This problem has been widely acknowledged by most of the
participants in the industry, but they have mainly spent the
last few years pointing fingers at each other, rather than
looking for solutions that have more than a snowball's chance in
hell of working.
It's all very well for Rod Sims, the chairman of Australia's
competition regulator to say, as he did at the ADGO event, that
natural gas producers are treating customers with "almost
contempt", and that if they don't make more supply available, a
strong regulatory response is inevitable.
It's also not really helpful to point out that the state
governments of New South Wales and Victoria should reverse their
onshore development bans, since this is unlikely to happen. Both
major political parties in those states have shown very little
appetite to engage in a conflict with the environmental and
It's probably not that helpful either, for producers to
tell gas customers that there is no problem with supply, but
that the price they will have to pay for it is at least double
what they have been used to paying.
Virtually all industry participants agree more supply is
needed, but how best to achieve this is the burning question.
Companies such as Exxon Mobil, which operates some
of the southern offshore fields, are committed to spending
hundreds of millions of dollars to explore for new reserves and
to further develop existing fields.
A range of both small and large domestic companies say they
can develop onshore fields in the north of the country, but that
the cost of transporting the fuel from there to the southeastern
demand centres means it will be a relatively expensive resource.
And there are also five proposed LNG import terminals, of
which at least three look to have the financial backing
necessary to be brought to fruition.
These projects would see floating storage and regasification
ships anchored near Sydney and Melbourne in order to supply
natural gas into those markets.
Given the relatively low capital costs, especially compared
to developing remote fields in the north of the country, the
sponsors of the LNG import terminals believe they can supply
natural gas at a competitive price.
They may well be correct, and that is how the conclusion is
reached that the world's largest LNG exporter is to become an
importer as well.
(Editing by Tom Hogue)
First Published: 2019-03-06 08:07:40
Updated 2019-03-06 15:00:00
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