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Australia in line to dominate AP LNG supply


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Tuesday, 18 May 2010: APPEA key note speaker and Deloitte’s Global Oil and Gas Leader, Adi Karev, said today Australia is in line to dominate the Asia Pacific regions supply of liquefied natural gas (LNG) but will need to carefully weigh development challenges against demand.

Presenting his paper “Travelling East: The Great Energy Continental Shift,” today (Tuesday 18 May), Mr Karev confirmed that Chinese Oil Companies are driving the global migration of energy consumption centre from west to east challenging the role previously enjoyed by International Oil Companies (IOCs).

“China is forecast to overtake the United States soon after 2025 to become the world’s largest spender on oil and gas imports,” he said. “In addition, India is expected to surpass Japan to become the third largest importer globally.”

“Australia is well placed to play an important role in the paradigm shift from west to east because of its geographic location and rapidly expanding LNG sector.”

Mr Karev said that Australia may soon surpass Indonesia and Malaysia in LNG production, at the same time it is unlikely that the LNG sector will see the same growth in prices that the oil market has enjoyed in the past few years.

According to Stephen Reid, National Leader of Deloitte’s Oil and Gas Group, “Essentially, Australia’s LNG industry will need to balance the challenges of access to human capital and project cost overruns against potential growth in demand from China and India,” he said.

Mr Karev said that forecasts for the LNG sector were strong, though they may have cooled somewhat recently. “In 2009, the World Energy Outlook reported that global primary gas demand is predicted to rise by 41% and that more than 80% of this increase will come from buyers in the Asia Pacific. However, this has been tempered more recently by forecasts of a supply glut in the Atlantic basin gas market in the next five years and the fact that the global financial crisis has somewhat lowered demand in that sector which could see a flow-on to Asia-Pacific suppliers.

China to increase LNG use from 4 to 10% of energy consumption

While there has been some slowing of the growth of the Chinese economy, real GDP growth is still likely to remain an impressive 8.4% in the period of 2010 to 2014. Further, China is expected to more than double its LNG consumption by 2020 however this consumption comes from a relatively low base.

“China’s LNG demand is being driven by climate change and forecast economic growth. At present LNG is relatively small in terms of its overall energy consumption accounting for only 4% of its current energy mix,” Mr Karev said.

“However, the country wants to reduce its reliance on coal and crude oil for its energy needs and boost the share of natural gas in its energy mix to 10% by 2020.”

“As a market China is increasing in importance vis a vis the traditional gas markets of Japan, Korea and Taiwan and it recently signed supply deals with Qatar and Papua New Guinea. Further evidence of China’s plans are the many new LNG terminals sprouting up along China’s coastline as well as the expansion of existing plants in Shanghai, Guandong and Fujian,” he said.

“The Chinese government takes a long term view and a low emissions environment at home is a source of future global political power - particularly given China’s heavy emphasis on export,” he said.

Tax and Regulatory settings

Mr Karev said that Australia has had a long held reputation of stable regulatory regimes, but that the global energy industry will no doubt be watching recent developments regarding the proposed new taxation regime with significant interest.

“The government has to work closely with the industry to create certainty as quickly as possible, he said. “Provided it gets the regulatory settings right and manages the resourcing constraints and other challenges effectively, Australia should continue as the preferred source of many raw materials that will help the region fuel its future economic growth.”

According to Mr Reid, Deloitte has been consulting with clients extensively over the past two weeks since the resources (RSPT) tax regime was announced.

“Deloitte’s initial RSPT modelling and discussions with clients has allowed our oil and gas tax specialists to identify more than 30 potential issues to date that will require further consultation

“The definition of super profit, use of the long term bond rate, and effect on future cash flow are emerging as three key agenda items,” he said. “An immediate implication of the proposed tax is the need for companies to consider its impact on impairment as early as at 30 June.”

Mr Reid said that now the announcement has been made, there is a risk that uncertainty regarding the final form of the Super Profits Tax could create an environment where the industry is unable to move forward on large projects whilst the rules are being sorted out.

To read Deloitte’s latest media release about the Super Resources Tax (RSPT), “Uncertainty will impact resource sector investment”, click here.

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Name:
Karina Randall
Company:
Deloitte Australia
Job Title:
Corporate Affairs & Communications
Phone:
Tel: + 61 2 9322 3778, Mobile: +61 414 823 712
Email
karandall@deloitte.com.au

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