US LNG dominance confirmed

THE International Energy Agency has confirmed the Australian LNG sector’s worst fears, that the US’ shale gas revolution has it on track to challenge Australia and Qatar as the world’s top exporter.

US LNG dominance confirmed

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While project optimisation and Asian customers' increasing urge to revise LNG supply contracts are arguably more practical concerns for the more than $200 billion worth of megaprojects coming on stream in Australia, the mantle as the world's top exporter due to kick in over the next two years has been flouted by government and industry for years.
 
Tokyo Gas, Japan's biggest city-gas supplier in what is still the world's largest, if declining, LNG importer, is in talks to renew supply contracts and will push to revise terms to get more flexibility and reduce prices, according to its gas resources department's senior general manager Takashi Higo.
 
The move follows Japan's Fair Trade Commission's ruling that so-called destination clauses that restrict resale of LNG cargoes are anti-competitive.
 
Japan is still Australia's largest LNG customer. Last year it took 48% of Australia's cargoes, though Woodside Petroleum CEO Peter Coleman told Energy News at a half-year roundtable that he knew when he started in the role that the Asian giant's population was declining and the company's fortunes were too reliant on Japan's.
 
If that was not enough to deal with, the IEA said overnight that the US, already the world's largest gas consumer and producer, will account for 40% of the world's extra gas production to 2022 thanks to its domestic shale gas surge.
 
 Woodside is hedging its bets both ways, trying to convince its North West Shelf partners to accept Browse Basin gas for the Karratha Gas Plant ahead of other deposits in the Scarborough and Greater Gorgon areas, while progressing the Port Arthur LNG project with Sempra Energy in Texas.
 
Yet even with US domestic gas demand growing thanks to the resurgent industrial sector the shale industry arguably saved, more than half of its production increase will be used for LNG for export.
 
"By 2022, the IEA estimates that the US will be on course to challenge Australia and Qatar for global leadership among LNG exporters," the agency said. 
 
IEA executive director Dr Fatih Birol said the US shale revolution was showing "no sign of running out of steam and its effects are now amplified by a second revolution of rising LNG supplies".
 
"Also, the rising number of LNG consuming countries, from 15 in 2005 to 39 this year, shows that LNG attracts many new customers, especially in the emerging world," he said. 
 
"However, whether these countries remain long-term consumers or opportunistic buyers will depend on price competition."
 
That is where the Asian buyers' increasingly aggressive pricing movements will kick in. 
 
Petronet, India's largest LNG importer, was last year seeking a cut of at least 10% in the price of LNG it was planning to buy from Gorgon project partner ExxonMobil, having signed a 20-year deal in 2009 to buy 1.44MMtpa at a price equivalent to 14.5% of the prevailing oil rates.
 
With oil prices having plummeted since then and LNG spot prices increasingly being de-linked from oil, it's a different world now.
 
The IEA said US LNG would also be a catalyst for change in the international gas market, diversifying supply, challenging traditional business models and suppliers and transforming global gas security. 
 
A wave of liquefaction capacity is coming online at a time when the LNG market is already well supplied, and that LNG glut is already affecting prices and traditional business models - and attracting new  LNG-consuming countries such as Pakistan, Thailand and Jordan.
 
At the same time, this ample availability of LNG is also creating competition with pipeline gas supplies, which the IEA said could also benefit consumers. 
 
"This intense competition is loosening pricing and contractual rigidities that have traditionally characterized long-distance gas trade," the agency said. 
 
"The change will be accelerated by the expansion of US exports, which are not tied to any particular destination and will play a major role in increasing the liquidity and flexibility of LNG trade."
 
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