This news is classified in: Traditional Energy Oil and Gas Natural Gas & LNG
Mar 5, 2019
Australia's status as one of the world's top exporters of liquefied natural gas could prove to be short-lived with a double-barreled threat emerging in the forms of a gas shortage and government intervention which could divert LNG shipments from customers in Asia to local consumers
The immediate problem, which could effect some of the world's biggest oil companies such as Royal Dutch Shell, ConocoPhillips and Malaysia's Petronas, is that three LNG projects located on Australia's east coast are using methane gas extracted from coal seams for liquefaction into easily transportable LNG.
Supplies of the coal-seam gas are running down faster than expected causing an energy consultancy to warn that one-third of the east coast LNG industry, located in the State of Queensland, could be closed by the year 2025, less than a decade after $60 billion was invested in their development.
Other Australian LNG projects on the west and north coasts are based on prolific supplies of conventional sources of natural gas and are not effected by what's happening in the coal-seam sector of the business.
The consulting firm, EnergyQuest, said the six operating LNG production facilities (or trains) in the three projects could be cut to four because of the gas shortage and threat of a diversion of supplies to Australian customers, especially manufacturing projects being hit by the gas shortage.
Capacity Shortfall
Last year, the Queensland LNG plants operated at an average of 82% of capacity, with one at just 65% of capacity.
The founder and chief executive of EnergyQuest, Graeme Bethune, said that building the three LNG projects with their six trains was bold and visionary but there was simply insufficient gas to run the export plants efficiently and meet the needs of the domestic market.
"The three Australian east coast projects are all successfully producing, with China the biggest market (70% of 2018 Queensland exports), followed by Korea (17%) and Japan (9%)," Dr Bethune said.
"However, two projects, the Shell operated Queensland LNG, and the Santos-operated Gladstone LNG. are operating well below capacity due to insufficient gas supply and diversions to the domestic market."
The coal-seam gas shortage is not a result of insufficient gas in the ground, it is largely a result of political directives which have effectively quarantined large areas of ground from development.
Urgent moves to free up areas for gas development are being made but whether the additional gas supplies are available in time to prevent a crisis is an issue which has triggered a stern warning from Australia's competition regulator, the Australian Competition and Consumer Commission (ACCC).
Rod Sims, chairman of the ACCC, warned earlier today that LNG exporters could be forced by the government to redirect gas to the domestic market if more manufacturers went out of business because of a gas shortage and high domestic gas prices.
He told the Australian Financial Review newspaper that there were already two examples of businesses closing because of the gas crisis, a polystyrene cup maker and a chemical producer. Both use gas in their processes.
"If more businesses start to fail, and I believe they will, pressure will inevitably ramp up on governments to do more," Sims said, adding that the Queensland LNG operators should recognise the politics around the fuel.
They Promised No Crisis
"They promised this current crisis would not happen," Sims said.
Over-reliance on coal seam gas, which does not flow as freely as conventional gas, plus the attraction of high gas prices in Asia, has led to a shortage of gas in Australia's south-east which has the greatest concentration of manufacturing industries.
Political directives limiting gas exploration and production have compounded the problem and led to a number of solutions being proposed, including the construction of transcontinental gas pipeline to deliver west coast gas to eastern customers and the construction of LNG import terminals in Sydney and Melbourne.
Dr Bethune said that while some of the LNG production capacity in Queensland might face closure it would not totally dampen the State's status as a major gas supplier, though it could also be said that the current position was "as good as it will get".
