Australia continues to invest in LNG future

Australia's oil and gas sector is being propped up by huge investments in liquefied natural gas (LNG), with the country set to become the world's biggest supplier of the resource by 2018.

LNG is often touted as an environmentally friendly energy source that produces less greenhouse gases than other fossil fuels, while leaving no unburned residues. The resource's high calorific nature also means the latest generation technologies can achieve excellent energy efficiency from LNG.

The Australian Bureau of Resources and Energy Economics (BREE) noted that these qualities make LNG a key part of the country's energy future, both domestically and on the international scene.

In the organisation's Gas Market Report 2014, released on November 26, BREE said a significant amount of the nation's energy investment is tied up in LNG projects. In fact, 87 per cent of the value of confirmed schemes is through large-scale LNG ventures.

Wayne Calder, deputy executive director of BREE, said these developments will have a crucial economic impact on the country in the years to come.

"The scale of the LNG development in Australia is almost without precedent – seven new LNG projects under construction and coming into production over the next four years, an investment worth around $200 billion," he remarked.

Overcoming industry challenges

According to the Australian Petroleum Production and Exploration Association (APPEA), the country's LNG industry is "coming to a crossroad".

While the huge natural gas projects could make the nation a key player in Asia's oil and gas sector, APPEA expressed concerns that the current regulatory conditions and workforce availability are not conducive to success. 

"Labour market strains, increased production costs and increasing competition from North America and East Africa could stymie our potential for future growth," the organisation stated in a November 13 media release.

However, APPEA claimed the benefits for both Australia and the environment of strengthening the LNG sector would be enormous. The agency, which is the peak national body for oil and gas, said 9.5 tonnes of emissions from coal-fired energy generation can be avoided for every tonne of carbon dioxide equivalent released through LNG production.

Furthermore, the industry generated $13.7 billion for the national economy in 2012-13, with 23.9 million tonnes of LNG shipped across the world. This figure is expected to increase four-fold within just five years.

Specifically, Australia is ideally positioned to take advantage of China's shift to natural gas, as the nation looks to move away from traditional fossil fuels in some of its largest cities, including Shanghai and Beijing.

Connecting with Asia

Recent analysis from the International Energy Agency (IEA) highlighted similar issues with the Australian LNG market, as well as shortcomings in Asia's natural gas networks overall.

Projects in Australia will contribute a large proportion of the 150 billion cubic metres (BCM) of new LNG supplies predicted to enter the market over the next five years. Demand in Asia will rise by 250 BCM during this time.

Maria van der Hoeven, executive director at the IEA, echoed the APPEA's call for regulatory reform, arguing that Asia risks missing out if it fails to react to an increasingly globalised LNG market.

"The advent of new LNG supplies represents a golden opportunity for Asia, but first the region's governments must address the rigid and illiquid markets that undermine affordability and accessibility for consumers," she explained.

"For gas to be a sustainable contributor to energy security in the region, Asia must look to reforms."

The IEA suggested optimising trade flows between consuming countries and producers by offering open, third-party access to infrastructure. This would create gas-trading hubs across Asia, with Singapore already leasing the way having launched the region's first multi-user LNG terminal.

Taking the next step

IEA's 2014 World Energy Outlook reports predicts a strong future for natural gas, with demand expected to rise by more than 50 per cent between now and 2040.

This is the fastest rate of growth among fossil fuels – and Australia is ready to play a pivotal role in the market's expansion. However, this will require regulatory reforms and a more comprehensive approach to tackling regional trade issues.

The IEA claimed that solving these issues may require organisations to overhaul existing business models, while producers were encouraged to optimise project management and execution processes. Failing to do this may not only have significant ramifications for the LNG sector, but also the wider resources industry, which is already relying on natural gas for much of its project revenues.

"Investment in the Australian resources and energy sector is projected to moderate in the medium term as the large LNG projects are completed," BREE admitted.

"Projects currently progressing through the development pipeline are unlikely to be of a scale sufficient to offset the reduction in investment associated with the completion of the 'mega' LNG projects."

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