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Something Unexpected Just Happened In LNG Markets

Something Unexpected Just Happened In LNG Markets

LNG

In the increasingly topsy-turvy world of liquefied natural gas (LNG) markets, the world’s largest LNG importer could soon be exporting the super-cooled fuel to the world’s second largest LNG exporter – a situation unimaginable, even laughable just a few years ago.

On Monday, news broke that a Japanese consortium, made up of JERA, the world’s largest private LNG buyer, and Marubeni Corp., were planning to export gas to industrial users on Australia’s eastern coast. There is even a possibility that the Japanese consortium will construct an LNG import terminal in New South Wales (NSW), Australia’s most populous state.

A report three days ago in The Australian Financial Review said that the proposed terminal’s imports could represent up to 75 percent of NSW’s gas demand, while plans to increase the number of gas-fired power stations will increase that demand pull.

How could Japan, for all practicable purposes a hydrocarbon anemic country with scant oil and gas resources, import gas to oil and notably gas rich Australia?

The answer is straight forward: In an effort lock in lucrative prices for LNG in the Asia-Pacific region amid limited supply around the start of the decade, Australia went on an LNG export project development feeding-frenzy. Since the country doesn’t have an energy master plan there was no coordination on these massive CAPEX export projects. Adding insult to injury, budget blowouts and cost overruns since then have been the norm, casting further doubt on the wisdom of Australia having as many as ten major LNG export projects.

As a result, Australia will soon overtake Qatar as the world’s largest LNG exporter, with more than 80 million tons per annum (mtpa) of liquefaction capacity. Qatar, however, and likely for geopolitical reasons as much economic, has vowed to increase its production capacity from 77 mtpa to over 100 mpta in the next five years.

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