x Abu Dhabi, UAEFriday 21 July 2017

Australia bridging the gulf as a supplier of LNG

Analysis Australia is vying with the Gulf to become the main supplier of liquefied natural gas to Asia.

Australia is vying with the Gulf to become the main supplier of liquefied natural gas to Asia, by far the world's biggest LNG consumer. It is hoping that proximity to Asia and a stable political and business environment will give it a long-term edge. Underscoring Australian ambitions, three of the world's leading energy companies gave the formal go-ahead yesterday for a giant natural gas project off the north-west coast of Australia that will supply LNG demand in Asia for decades.

The decision by Chevron, ExxonMobil and Royal Dutch Shell to invest in the Gorgon field off western Australia and convert the gas into liquefied form for export in tankers followed the announcement by Chevron last week of binding long-term sales contracts worth about US$60 billion (Dh220.38bn) with Japanese and South Korean customers. Nearly all the LNG will come from Gorgon. Earlier, other companies in the joint venture signed agreements to sell Gorgon LNG to China and India. Those deals were worth more than $60bn.

Combined, the four consuming countries - Japan, South Korea, China and India - have committed to buy well over half of the 15 million metric tons a year of LNG that Gorgon will produce when it reaches full output by 2016, two years after exports start. Under the contracts, buyers have agreed to take large quantities of gas for periods of 20 years or more to underpin the high development costs of the first phase of the Gorgon project, put by the joint venture at $37bn. In return, they are assured of reliable supplies. Gorgon's proven and probable gas reserves are estimated to be 17.2 trillion cubic feet. But if other fields in the vicinity were brought into production, it would nearly treble the amount of gas available to 40 trillion cu ft, the equivalent of 6.7 billion barrels of oil.

East Asia is the mainspring of international trade in LNG, which brings gas from big but remote fields to markets where it is needed that cannot be reached by pipeline. Countries in the region are the largest buyers of LNG, importing 115 million metric tons last year, more than two thirds of the global total, according to BP's latest annual statistical review of world energy. By 2015, Asian demand for LNG is expected to rise to 164 million metric tons and Australia may increase its share of the market to 55 per cent, from 13 per cent last year, according to Tony Regan, a consultant for Tri-Zen International, based in Singapore.

The main LNG consumers - Japan, South Korea and Taiwan - are being joined by major new buyers, India and China, as additional supplies from within the Asia-Pacific region come on stream. This has both environmental and geopolitical implications. All Asian LNG buyers want greater energy security and cleaner burning fuel than coal for generating electricity. Coal-fired plants, widely used in China and India, emit pollutants such as sulphur and nitrous oxides, soot and dust. They also produce roughly twice as much carbon dioxide per unit of electricity generated than those that run on natural gas.

Carbon dioxide is the main greenhouse gas blamed by many scientists for warming the planet and causing climate change. Power generation contributes more to global warming than any other industry, and coal is the dirtiest part of it. As more gas in the Asia-Pacific region becomes available for export, local users will be able to reduce their energy reliance on the politically volatile Middle East. This will strengthen the web of economic interdependence in Asia. The web is being reinforced by cross trade and investment. It will buttress stability and underpin wider community-building efforts in the Asia-Pacific area.

At present, the top three LNG exporters are Qatar in the Gulf, and Malaysia and Indonesia in South East Asia. Energy consultants Wood Mackenzie are forecasting that as Gorgon and other large gas reserves are tapped in Australia, it will become the world's second largest supplier by 2014, and possibly overtake Qatar at the top by 2020. However, other analysts doubt that all the dozen or so proposed LNG projects in Australia and one in neighbouring Papua New Guinea will find the buyers and finance to bring their expensive ventures into production.

While leading South East Asian exporters, Indonesia and Malaysia, are struggling to find major new gas deposits for LNG exports, Qatar and Russia plan to sell more of the fuel to Asia and new exporters in North America may also add to the competition. The writer, a former Asia editor of the International Herald Tribune, is a visiting senior research fellow at the Institute of South East Asian Studies in Singapore.