Australia will soon become the world’s largest LNG exporter, but a leading international expert believes the country is better off importing US gas if it wants to solve its energy crisis.
Dave Ernsberger, S&P Global Platts’ global head of energy pricing, argues it makes more sense to ship gas from other countries than to build more pipelines within Australia and keep gas within its borders.
“Australia being an importer and exporter of LNG is very savvy economic decision making,” Mr Ernsberger told Fairfax Media.
“That is a very good way for any country to go, especially one that is as gigantic as Australia. It doesn’t really always make sense to put pipelines in place.”
There is growing support for the development of Australian gas import terminals, despite the fact the nation will soon become one of the world’s largest exporters with around 70 per cent of all gas produced slated to head overseas.
“Something like [gas import terminals] can be a better long-term, less of a headache, solution [than pipelines],” Mr Ernsberger said.
It could also be more economic to build a regasification facility at a port like Sydney and bring in gas from other parts of Australia than to lay pipelines across the country and have to maintain those pipelines, he said.
Other major exporters such as the UAE are building such import facilities as “it’s easier to get it on a ship than go through all of the hassle of laying pipelines”, he said.
AGL and Andrew ‘Twiggy’ Forrest’s joint venture Australian Industrial Energy group is developing floating LNG import and regasification terminals in Victoria and NSW, respectively.
But Wood Mackenzie oil and gas analyst Saul Kavonic believes that compared to pipelines, the cost benefit of importing was marginal, with the real value being elsewhere.
“The value in LNG import terminals is in providing negotiating leverage for pricing and in its storage capability,” Mr Kavonic said.
Major pipeline projects
However, there are still a number of major gas pipeline projects on the cards.
A 1500 kilometre West-to-East gas pipeline, connecting West Australian gas fields to the eastern states, took a leap forward late last year. Its construction cost estimates run as high as $5 billion, while AGL’s import terminal is forecast to cost around $250 million.
The Northern Territory has its own pipeline development, which links the Territory’s gas fields directly to Queensland, although it may add both the cost of NT to QLD transport on top of QLD to NSW and Victoria gas transportation costs.
Mr Ernsberger said while LNG was a volatile commodity when compared to pipeline gas, which currently feeds the southern states, the change in global LNG markets from longer-term contracts to more flexible agreements is bringing more stability – especially as the US ramps up gas exports and uses more flexible contracts that can react to this demand.
“You don’t get the big slumps in price and you don’t get the big spikes in price with flexible cargoes as people can respond more hand to mouth with any opportunity,” he said.
The Australian Competition and Consumer Commission currently has the gas pipelines under scrutiny, claiming it is a monopoly.
“We want to regulate the pipeline monopoly,” ACCC chairman Rod Sims said.
“We can’t break up it as the situation is what it is, but there are actions we can take.”
Threat of export limits
Late last year, the ACCC forecast a major shortage in Australian domestic gas levels, which prompted a threat by the Turnbull government to put in place a domestic reserve and cut export levels.
Mr Ernsberger said this has impacted the perception of Australia as a reliable source of gas.
“Australia has been at the forefront of the development of the LNG market for 20 years and I think the perception that those events created in the LNG market is that buyers can’t depend upon Australia to be the never-ending supply of gas that it used to think Australia was,” Mr Ernsberger said.
“It’s not necessarily a crisis of confidence in Australia, but there is more of a moderation in thinking.”
He said this has led buyers to look to other LNG exporters such as Qatar or the US, “to be diversified against any significant backlash in Australia that might genuinely cut into the supplies out here.”
Source: Sydney Morning HeraldPrevious Next