Australia LNG - will the growth in LNG production be maintained?

Australia is fortunate to be endowed with considerable natural resources, not only for energy products, but also coal, metal ore minerals and precious stones. With 133 tcf gas reserves it is a major gas resource owner, the largest in Asia and ninth largest in the world. Australia, however, is a large country and its gas reserves tend to be located in remote locations and this, together with the small population of the country and its modest annual gas consumption (in 2011 26 bcma compared to 105 bcma in Japan and 80 bcma in the United Kingdom) means that, in order to commercialise its gas, capital-intensive LNG export schemes have had to be developed. Australian companies, supported by the Australian government, have been following this strategy since the successful start-up of the North West Shelf project in 1989, but only since 2010 has the industry seen a serious increase in the growth of LNG export projects sanctioned. In 2011 Australia exported 26 bcma LNG, through two LNG projects (the same amount of gas as it consumed domestically). LNG exports in 2011 were valued by the Bureau of Resources and Energy Economics at A$11 bn, approximately 6 percent of Australia’s energy and resources export earnings. It is the planned future growth of Australia’s LNG exports that will change the face of LNG globally with the country expected to overtake Qatar as the largest supplier of LNG before 2020. In addition, the country is the first to spearhead LNG production from coal bed methane (also known as coal seam gas), which can be produced in commercial quantities when the coal is de-pressurised and de-watered through drilling and the application of suitable well technology. This is a development that was not thought feasible ten years ago. Developers expected the location of the coal seam gas LNG plants on the East Coast – nearer to the main population centres and with an onshore gas supply – to lead to lower cost LNG export plants when compared to those located on the more remote, and environmentally sensitive, north-west of the country which are based on offshore gas reserves. The extent to which the East Coast LNG projects will be cheaper than the conventional gas projects of the northwest is still to be proven. This rapid growth of LNG export investment is causing substantial challenges to project developers as projects compete for resources, human and financial. This article will examine the LNG projects that are under development and look forward to see how the Australian LNG sector can expand further in the future. It will also discuss Australia’s competitiveness for future LNG supplies in the next decade.