Australia’s LNG export success and domestic demand

Australia’s natural gas plans are proving a boon to a country already brimming with confidence after escaping recession thanks to its commodities exports. Coal bed methane or, as it’s called in Australia, coal seam gas, is gaining momentum too with Arrow Energy, a medium-sized operator in Queensland’s burgeoning CBD industry, suspending its shares on Friday – a move thought to herald an improved offer from Shell and PetroChina, who launched a bid for Arrow earlier in March. Arrow is planning one of the four CBM liquefaction plants mooted for the state.

But the strength of the export boom risks overwhelming domestic access to the country’s natural gas bounty, including for other segments of Australia’s commodities sector. Bloomberg quotes Alcoa, an aluminium company which is Western Australia’s single biggest user of gas, saying it is delaying plans for a new $4bn refinery “until we can secure long-term competitive gas supply”.

And:

“You have all this energy and gas but most of it’s exported,” said Peter Arden, a Melbourne-based mining analyst at Ord Minnett Ltd., a JPMorgan Chase & Co. affiliate. “It’s going to be a really big cost input for the whole of Western Australia, especially the miners who rely on it for power.”

Major overseas users have formidable buying power, particularly since final investment decisions on LNG projects are not taken until buyers are lined up. Despite a recent setback when a Chinese agreement on a major proposed West Australian LNG project lapsed, Australia’s LNG plans look pretty secure, with an FID already taken on the giant Gorgon project, and Wheatstone’s FID due expected in 2011, according to Chevron.

Nonetheless, with question marks over whether the current US shale gas glut will spill over into LNG markets, and the IEA’s chief economist Fatih Birol reiterating the agency’s forecast global oversupply could persist until 2015, it’s not impossible that local consumers might get a look-in.

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