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Column – Who took my gas?Australia’s LNG boom hurting locals: Russell


(Clyde Russell is a Reuters columnist. Views expressed are his own)

LAUNCESTON, Australia, March 30 (Reuters) – The irony is that as Australia emerges as the world’s largest exporter of liquefied natural gas (LNG), the domestic industry is under threat of being unable to procure the fuel.

A combination of new LNG plants, an exploration moratorium and a successful anti-gas campaign means industrial and residential users in the three most populous states of New South Wales, Victoria and Queensland are likely to pay for gas over the next two years. Struggling with supply.

The first of three coalbed methane-to-liquefied natural gas plants in Queensland started loading cargo in December last year, with the others due to start production later this year.

It is the first plant in the world to supply liquefied natural gas using gas extracted from coal seams, a process that requires hundreds of wells dotted across the predominantly agricultural land of Australia’s east coast hinterland.

There are four more LNG projects under construction in northern and western Australia, but these use conventional offshore wells and the areas have no pipeline connection to the eastern seaboard, where more than 80 per cent of Australians live.

Three new coal seam LNG plants will cause gas demand in eastern Australia to more than triple by 2016, from 694 pJ a year in 2013 to 2,100 pJ, according to utility AGL Energy.

The 2016 demand forecast equates to approximately 37.8 million tonnes of LNG, while the three new coal seam supply plants have a combined capacity of approximately 25.8 million tonnes per annum.

So far, the domestic gas market in eastern Australia has been largely supplied by conventional wells in central Australia and offshore platforms in the Bass Strait between the mainland and the island state of Tasmania.

Eastern states are connected by a network of pipelines, and the market is characterized by fixed-price long-term contracts that help support industrial users such as glass and paper manufacturers, as well as retail customers.

Domestic gas prices are also lower than LNG prices in Asian markets despite a plunge in LNG spot prices LNG-AS A record low of $6.70 per million British thermal units (mmBtu) hit last month brought the two closer together.

The problem for domestic users is that with many long-term contracts expiring in the next few years, they find that suppliers are unwilling to enter into new long-term contracts, or will only enter into new long-term contracts at higher prices than equivalent LNG. cost.

Speaking at the Australian Domestic Gas Outlook conference in Sydney last week, one manufacturer insisted the market had failed and his business was at risk of collapse without certainty and stability in gas supplies.

In his view, natural gas is being diverted from the domestic market to export-focused LNG plants, although the companies operating the projects claim to have sufficient reserves to meet their supply needs.

What was clear at the meeting was that domestic prices will inevitably rise to meet LNG prices, although whether those prices will be long-term LNG prices linked to oil or more volatile spot prices remains to be determined.

New supply blocked

Another major problem faced by domestic users is the lack of new supply developed for the local market.

This was partly due to the suspension of onshore exploration and production in New South Wales, Victoria and Tasmania.

The bans were enforced by politicians concerned about the impact of an anti-coal seam gas and fracking campaign jointly launched by environmental and agricultural groups.

With no new production planned to come online, the real risk is that as LNG plants are added, gas previously supplied to the domestic market will be absorbed by LNG, leaving domestic users without the supply prices they deem competitive.

A state election was held in New South Wales over the weekend, with the ruling Liberal Party returning to power.

But the opposition Labor Party has campaigned to stop a large coal seam gas project run by Santos, Australia’s largest onshore producer.

While Labor’s defeat ensured the project’s immediate security, Santos may have deemed the political risk of going ahead too great, given the chances of the opposition winning the next election, due in four years’ time.

Key to Australia’s domestic gas market is the development of new sources of supply to ensure demand from LNG plants and local users is met.

The only way this can be done is for NSW and Victorian politicians to stand up to the environmental and agricultural lobbies and convince communities that the science and regulations for extracting gas from coal seams are solid.

Beyond that, the domestic gas industry, from producer to consumer, must convince communities and politicians that the cost of losing what remains of Australian manufacturing outweighs the negligible risk of extracting gas.


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