Australia to challenge Qatar gas leadership with massive LNG projects

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A view of Kwinana LNG Plant in Western Australia. Photo – Gastoday.com.au

Australia is expected to pip Qatar and become the world’s biggest liquefied natural gas (LNG) producer by 2020 as it unlocks gas reserves that could last more than a century, a report said on Sunday.

The country is already the fourth biggest source of LNG in the world, with three export-operational projects – Western Australia’s North West Shelf and Pluto projects, and Darwin LNG in the Northern Territory.

It is also working on seven of the world’s 10 major LNG projects, with AU$176 billion (US$183 billion) of private Australian and foreign investment in gas projects since 2007.

“The projects already under development will take us ahead of Qatar. It’s just a case of when that happens,” Wood Mackenzie analyst Chris Graham told AFP.

The tiny Gulf emirate holds the world’s third-largest gas reserves and last year saw LNG production capacity rise to 77 million tonnes per annum (mtpa).

Canberra is hoping it reaches the target sooner, with China’s demand for LNG growing by almost one-third last year, while India’s import capacity was projected to triple by 2015.

Australia exported 18.9 mtpa LNG worth $11.1 billion in 2011 and is expected to hit 63 mtpa by 2016-17.

The Pacific nation is also considering other proposals which could increase output above 100 mtpa, and potentially position it as the world’s largest LNG exporter by the end of the decade.

“By 2017, based on proposed and committed new projects, Australia’s LNG production capacity is projected to quadruple,” Resources Minister Martin Ferguson said.

Australia, top coal and iron ore exporter and blessed with abundance of natural resources, escaped recession during the global financial crisis thanks to its mineral exports to commodities-hungry Asian economies, especially China.

Canberra aims to boost its income in near future by securing LNG sales contracts with China and South Korea. It also sold vast majority of exports to Japan (69% in 2010) and the shipments continue to rise in the wake of Fukushima nuclear catastrophe.

“Australia is a very popular source for East Asian buyers because of low political risk and they are comfortable dealing with operators in this country,” Graham said.

“Sure, it is a high cost environment but resources in Australia are huge and opportunity from a resource perspective is obviously there and it ultimately comes down to competing projects elsewhere in the world.”

Future Challenges

Australia, likely to overtake Qatar by 2020, faces strong competition from the United States and also potentially from some African nations, Adrian Wood, an analyst at Macquarie Securities, said.

Canberra is rapidly expanding the LNG export sector as developing countries enjoy economic growth and replace coal with gas for electricity generation.

“Natural gas is increasingly the fuel of choice for developing economies because of its versatility and lower carbon emissions compared with other fossil fuels,” Ferguson said.

The country is facing challenges of providing adequate skilled labour and the infrastructure needed to deliver projects that export LNG – natural gas that has been cooled to liquid state to make it practical for transportation, he noted.

A Bureau of Resources and Energy Economics report released his month noted that Australia’s LNG export sector projects have ‘relatively high costs, slower construction times and larger capital expenditure’.

It blamed remote locations of offshore gas fields behind the rise in costs, as some Australian projects’ capital costs hitting around AU$3-4 billion ($3.12-$4.16bn) per million tonnes of annual capacity – well above recent projects in Papua New Guinea and Angola.

“These costs are the highest in the world and are attributed to high labour and other input costs and a high Australian dollar,” the report said.

“Counterbalancing these relatively higher costs are Australia’s stable system of government, high levels of personal security, well-defined property rights, and established fiscal and regulatory frameworks that encourage foreign investment.”

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