LNG
All Gassed Up and Nowhere to Go
May 2019
Australia is the world’s newly-crowned largest gas exporter, having recently overtaken Qatar to secure the top spot. The country currently has seven operational LNG production plants, with plans to increase that number to at least 10 by 2020, exporting more than 80Mt of LNG every year after.

Demand for LNG is rising globally, and the country is capitalising on that fact by investing heavily in the industry, tapping into its gas reserves, and… planning for five new LNG import terminals?

This makes more sense than it originally seems when you remember the key adage of our age: nothing lasts forever. In this case, the most pertinent ‘thing’ that will definitely not last forever is the Proven and Probable gas reserves around Australia, particularly in its south-east fields. Currently-developed fields are set to see depletions from this year onwards, resulting in a shortfall that, if not corrected for, could leave the domestic market considerably short-serviced.

If domestic production is to keep up with demand, increasingly costly measures are likely to be required for development of more gas fields over the medium term, potentially raising costs for Australian gas and electricity consumers—an unwelcome scenario, given that the country is already struggling with high gas prices.

Further into the future, even the proposed pipeline expansions and onshore fields in the country’s north might not prove a long-term solution, with 2030 onwards seeing a definite risk of pipelines and processing facilities hitting capacity and being unable to increase throughput to match a predicted growth in demand in the east and south-east.

 

 

To solve these issues, Australia is proceeding with what some industry members have called the “least worst option” and building LNG import capacity along its east and south-east coast, ensuring supply to the high-population regions that run the highest risk of being underserved in a gas crunch.

The relatively low initial investment cost of new floating LNG import terminals—when compared to the exploration and development costs of new, further-afield gas resources—indicate that these projects will be able to ensure that the world’s largest LNG exporter will continue to be able to supply natural gas to its consumers at a competitive price. These projects also have a far faster turnaround time: an average of two years, rather than the five-plus for onshore pipeline development.

 

The Options on the Table

The first of the five proposed import terminals has received government approval: the Port Kembla LNG project. The US$180m terminal is headed towards a final investment decision in the second half of 2019 and could supply up to 70% of NSW’s gas demand when it comes online in late 2020. The country’s most populous state currently sources 95% of its gas from interstate sources. Its approval puts it ahead of the state’s other proposed terminal, the Newcastle LNG project, which could be three times as large if built. Newcastle is due for a final investment decision in the first half of 2020, giving investors plenty of time to assess the market.

Two of the remaining three proposed terminals are slated for Victoria, the country’s second-most-populated state. The Crib Point and Longford LNG terminals would be a little larger and smaller than Port Kembla, respectively, but Longford appears highly speculative. Crib Point remains the most likely candidate for first development in the state, targeting a start-up date of H2 2021.

The remaining proposal would serve South Australia. The Outer Harbor LNG project would be slightly smaller than Port Kembla, and is due for a final investment decision in the last quarter of 2019. Its construction is expected to include a 500MW gas-fired power plant, but despite being the next project due for an investment decision, the terminal has made few headlines and its future appears somewhat uncertain.