Australia Faces New Challenges Attracting LNG Investments

Impact of Russia-China Gas Deal on Australia

The recent deal involving the sale of 1.34 trillion cubic feet (Tcf), or 38 billion cubic meters (Bcm), of gas annually from Russia’s OAO Gazprom to China National Petroleum Corp. (CNPC) brought a new, albeit a large, supplier for Asia Pacific, a development that could result in heightened competition for existing suppliers in the region. 

Gas consumption in China, already the world’s largest oil importer, is poised to rise further. The government is taking steps to mitigate the impact of air pollution by expanding gas share of the country’s energy mix. Gas is expected to comprise 8 percent of China’s total energy use by the end of 2015 and 10 percent by 2020, the U.S. Energy Information Administration said. China consumed around 5.93 Tcf or 168 Bcm of gas last year and Fitch Ratings indicated in a June 1 press release that Chinese demand should reach 14.12 Tcf (400 Bcm) in 2020.

The question then arise as to whether higher Chinese gas demand, which is forecast to overtake South Korea as the world’s second largest LNG importer by 2017 after Japan, will be met by more supplies from Russia or from Asia Pacific, including Australia.

Australian companies like Santos noted the changing LNG landscape arising from Chinese gas demand.

“Currently, Santos’ portfolio is under represented with Chinese buyers and partners. But we are pleased to say that there are near term opportunities available for both buyers and producers interested in entering the market with Santos as their partner,” Cleary commented.

“The [Russia-China gas] deal changes the level playing field … This means that new LNG [projects] will need to be competitive with that to go ahead,” Thierry Bros, a Paris-based analyst at Societe Generale told Bloomberg May 22.

With a changed gas environment in Asia Pacific, Australia which prior to “2010 was the only show in town … now faces competition from Russia, Canada, East Africa and Papua New Guinea,” Regan added.

Figures cited by industry players pointed to Australia’s diminished appeal as an LNG investment destination.


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