Australia Finally Completes its LNG Master Plan

It’s been a long time coming, but 2018 will be the year Australia becomes a LNG export powerhouse. After years of delays and billions of dollars wasted from postponements, the final two projects of the initial six LNG projects, tapping into giant natural gas basins in the north and northwest waters off Australia are finally ready. Shell’s Prelude FLNG project, which was once planned to be the first FLNG project in the world until Petronas FLNG Satu and Golar LNG beat them to it – is now ‘materially ready’ to begin production, while Inpex’s Ichthys project is scheduled for a Q218 operational start-up after years of delays. The struggles with meeting timelines isn’t confined to Shell and Inpex; with the exception of Darwin LNG, all of the major Australia north-western projects have struggled with workforce issues and service operations. The slump in crude & LNG prices also thwarted the once best laid plans.

But finally it is done. Australia’s six major LNG projects have added some 41 mtpa of LNG to a global demand base that is still growing strongly. Between now and 2035, natural gas demand is expected to grow at an average of 2% per year; twice the rate of total global energy demand. Demand for LNG is set to increase at an average of 4% per year. This year China overtakes South Korea’s massive appetite for the super-cooled and clean(er) fuel. Japan still holds its number one importer for now. Asian demand grew by more than 17 million tonnes, beating industry predictions going into the year. That is nearly as much as the total volume that Indonesia, the world’s -5th largest exporter, produced in 2017. However there are challenges that come with high LNG consumption growth. Namely, infrastructure. In China, where demand for LNG is expected to double within the next six years, LNG tanks were full to the brim last winter, and it could take no more, resulting in the tanks closed for a few weeks. Other hungry markets like Pakistan and Bangladesh and Vietnam, lack import capacity, which takes time to build hence the idea of deploying floating storage and regasi-cation units (FRSUs) there.

There are also worries, legitimate ones, that increased gas production from the rest of the world, including Russian piped gas and LNG, as well as America entering the fray with recent LNG exports to Europe and China, would spoil the party for the Australians. But it seems that the real victim is Canada. While Australia managed to enter the market in the nick of time – or so it seems – the promised ‘tsunami’ of LNG that would threaten markets in 2022/23, is less of a threat now. And that’s entirely because projects in Canada’s Pacific Northwest – which lagged behind by Australia’s by only a decade at most – did not make financial sense. Particularly given that environmental and indigenous population concerns are exponentially tougher to overcome in British Columbia. Petronas and Nexen have cancelled their projects, and are seemingly rallying behind Chevron’s Kitimat, which itself it facing problems both politically and economically. Meanwhile, American Gulf Coast LNG is nimbly developing along.

While Australia’s LNG appears to have made the grade, will Canada’s projects see the light of day? If you have read Shell’s LNG 2018 outlook report, it may appear so. “Following the wave of investment from 2011 to 2015, -final investment decisions (FIDs) on LNG projects have nearly stopped. As LNG projects generally take more than four years to start production, new supply will not be ready until well into the next decade. FIDs on new LNG supply projects are required soon to avoid a supply shortage in the 2020’s.”

Easwaran Kanason

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