USA gas supplies may challenge Australian AP dominance in gas marketDOWNLOAD
31st March 2011 – As Australian companies race to sanction and build their conventional and unconventional LNG export facilities, there are a number of game-changing trends that will impact future supply and demand for Australian LNG resources, according to Deloitte’s Australian Oil and Gas Leader, Mr Stephen Reid.
“Overall, fossil fuels are likely to continue to be an important source of energy for many years to come. The 2011 Deloitte Oil & Gas Reality Check report indicates that growth in the dynamic LNG industry will continue to be driven by strong demand from China. For example, the report shows that Chinese gas demand is likely to quadruple from 80 billion cubic metres (bcm) a year in 2009 to 320 bcm at the end of the current decade*.”
However, supply to China is likely to be increasingly influenced by reserves in China as well as the USA. “China itself has substantial unconventional gas reserves which, to date, remain largely unexploited as a result of low permeability, limited infrastructure and poor economics,” he said.
“A new pricing strategy introduced by the Chinese government in June could promote development of China’s reserves, and potentially reduce China’s future dependence on LNG imports.”
“In the USA, the LNG market is also changing rapidly: shale gas has become a game changer for the energy sector,” said Mr Reid. “The USA is now considered self sufficient in gas. Talk of new LNG re-gasification terminals in North America has been replaced by talk of liquefaction plants, which means that US shale gas may find markets in Asia and compete against other suppliers, including Australia.”
At the same time, Mr Reid notes that Asian national oil companies (“NOCs”) are determined to acquire upstream assets to mitigate their increasing dependence on imported energy. “Korea National Oil Corporation (KNOC)’s recent hostile acquisition of Dana Petroleum is a good example of the lengths some NOCs are prepared to go,” he said.
Mr Reid said that monetising China’s unconventional resources and the possible export of US shale gas will take time. “This provides Australian producers with a window in which to establish a dominant position in the supply of gas to Asia,” he said.
“Australia has the added advantage that it is one of the few places in the world where foreign investors can acquire an equity interest in gas, which provides additional capital to enable development projects to proceed,” he said.
While it is too soon to fully understand the implications of the Japanese crisis on the oil and gas sector, certainly it has the potential to be another significant event for the sector. “In the short term, Japanese power companies will need additional supplies of coal and gas to replace power previously generated by the nuclear plants that have been closed,” he said.
“To the extent that some countries may reconsider their nuclear expansion programs, many recognise that this would result in greater ongoing demand for coal and gas. We have already seen share prices of gas and coal companies rise in anticipation of greater demand,” he said.
This is the second year that Deloitte’s Global Energy & Resources group has produced the Oil & Gas Reality Check. Access the full 2011 Oil & Gas Reality Check report on Deloitte.com.au