Imports of liquefied natural gas (LNG) to Australia – the world’s biggest LNG exporter – now appear “highly realistic” as the country struggles to fill a looming gas shortage, U.S. energy giant Exxon Mobil Corp. said on Thursday.
The assessment will add to the sense of urgency in the industry, which experts say needs at least 10-billion Australian dollars (about $9.3-billion) in new developments to meet longer-term gas demand and bring down high prices that are crippling many manufacturers.
As recently as a year ago, many thought importing LNG to Australia would be irrational, but shortages are expected as soon as 2022 and there are now five import proposals on the table, including one from Exxon Mobil.
“Just given the nature of growth in demand and where the outlook for supply is, at least for a period LNG import terminals look highly realistic,” Exxon Mobil’s new chairman for Australia, Nathan Fay, told an industry conference.
Exxon Mobil and its partner BHP Group are the dominant suppliers into the southeastern gas market, and imports would be complementary to further development of offshore fields in the Gippsland Basin, Mr. Fay said.
The startup of three LNG export plants in northeastern Australia has sapped gas from the local market and also led to higher prices, as most of the new supply is from higher-cost coal seam gas wells.
At the same time, drilling bans in the southeastern states of Victoria and New South Wales have curbed new supply to fill a gap as the offshore fields that meet about 40 per cent of the southern states’ needs are drying up.
MANUFACTURERS SUFFER
If supply doesn’t improve and prices fail to come down, manufacturers dependent on gas will shut, Australian competition regulator warned on Thursday in its latest report on the east coast gas market.
The latest casualty of the gas crunch was an aging chemicals plant in Melbourne, which a unit of Dow Inc. said this week it would be shutting, partly due to high gas prices.
That came after the closing of a maker of polystyrene coffee cups in Sydney and a brick and clay paver maker in Queensland, both of which partly blamed high gas prices, the Australian Competition and Consumer Commission said.
Gas prices to manufacturers are now around $9 to $11 Australian dollars per gigajoule, or half the price they were two years ago after the government pushed east coast exporters to release more gas for domestic purposes, but prices are still more than triple the level manufacturers paid five years ago.
“I think at $7 gas many of the manufacturing plants can survive. The problem is if they don’t get that soon, they just won’t be here,” ACCC chairman Rod Sims told reporters at the conference.
However, analysts said imported LNG was unlikely to be this cheap given the distance it has to travel, with new local supplies needed to bring certainty of supply and potentially cheaper prices.
“We are going to have a shortfall from 2021, and new infrastructure in some form is going to be needed to service that,” said Nicholas Mumford, managing director of Mumford Commercial Consulting.