And the next great energy heavyweight is… Australia?
The research firm Sanford C. Bernstein put out a report late last month (write-up from Bloomberg here) making the bold prediction that Australia will soon emerge as the “Qatar of the Pacific” — a phrase that doesn’t mean much to non-energy wonks, but means a great deal to anyone who follows the liquefied natural gas ...
The research firm Sanford C. Bernstein put out a report late last month (write-up from Bloomberg here) making the bold prediction that Australia will soon emerge as the "Qatar of the Pacific" -- a phrase that doesn't mean much to non-energy wonks, but means a great deal to anyone who follows the liquefied natural gas (LNG) business. In the past thirteen years, Qatar has transformed its economy by becoming the world's largest exporter of LNG -- a form of energy it hardly sold at all before the mid-1990s -- a move that gave the country's economy an enviable stability and relative diversity in the petroleum-dependent Middle East.
A series of high-profile energy investments Down Under over the past year have indicated that Australia is poised to make a similar leap from also-ran to world leader in the industry — a development that has the potential to remake not only the international gas industry, but also the politics behind it.
The spike in gas demand from Asia since the 1990s has turned Australia’s gas reserves, once considered barely worth tapping, into an attractive prize. A 2008 research paper by Mike Roarty of the Australian Parliamentary Library’s resources section illustrates a sizeable uptick in Australian gas exports beginning in 2003 and projects exports to more than double by 2020. A look at the map accompanying this report explains why Asian demand has only recently turned Australia into a major gas exporter: Most of Australia’s gas reserves are concentrated in difficult-to-access areas, such as the offshore fields in the Indian Ocean off the isolated northwest coast of Western Australia, or the coal seams of Queensland.
But with no signs of flagging Asian economic growth, especially from China and India, investment has been pouring into even these hard-to-reach fields. The Economist described the scale of these projects last year: the Gorgon liquefied natural gas project in the Indian Ocean has seen nearly $40 billion of investment from Chevron, Exxon Mobil, and Royal Dutch Shell; it includes a major gas liquefaction plant on windswept Barrow Island and a second, floating liquefaction plant, the world’s first, under construction nearby. Just to the north, Perth-based Woodside Petroleum is sinking $11 billion into developing the Pluto field. Gorgon is expected to yield some 40 trillion cubic feet of gas deposits, while Pluto is estimated to hold 5 trillion. Back in the east, a project is underway to extract natural gas from Queensland’s coalfields. The natural gas boom Down Under led the Bernstein report to bet on Australia accounting for an astounding 60 percent of new LNG capacity over the next five years — that would put the country on track to go from fifth-largest natural gas exporter to second-largest, behind Qatar.
But the surge in gas investment is also part of a larger trend of geopolitical rebalancing in global gas markets — one in which Russia is the big loser. Not long ago, Moscow had set a goal of supplying a quarter of the world’s LNG, which would have involved it growing substantially in Asian and American gas markets. After its first LNG plant opened in Sakhalin last year, majority stake-holder Gazprom optimistically reported steady demand from Japan and Korea. The company had plans to increase its LNG exports by expanding the Sakhalin plant and developing the vast Shtokman field in the Barents Sea. But as Jacob Gronholt-Pedersen wrote in the Wall Street Journal earlier this year, the economic slowdown in Europe has diminished Gazprom’s enthusiasm for difficult and expensive projects like Shtokman, and the company announced in February that it would be delaying the development of the Arctic site. The Sakhalin expansion project also remains a blueprint.
These project delays, combined with increased investment in places like Australia, Qatar, Southeast Asia, and America’s shale gas, have put the Russians at a disadvantage, according to Bloomberg’s Anna Shiryaevskaya. Energy analysts have begun to speak of a global gas glut, as gas projects in these other countries have led to a great increase in world supply. Russia has fallen behind in the LNG market, as Europe and Asia have begun turning elsewhere for gas: witness Korea Gas Corporation, a major customer for Sakhalin LNG, which signed a twenty-year contract to buy LNG from Australia last month. Western companies may also seek gas projects in countries with more favorable investment conditions than Russia’s. Shell was forced out of the lead position in the Sakhalin project by the state last year, while BP’s business jujitsu with its Russian partners in TNK-BP has been well-documented.
Newer gas developments, such as those in Australia, will be leading the way towards a world of increased supply and fungibility for natural gas, a world where established players like Gazprom will have to contend with greater competition and diminished political and economic influence. If Russia is to compete with these newcomers, it may have to re-examine its politicized energy policy and how it does business with foreign energy firms.
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