Jun 06 2018
According to industry research company IBISWorld, a combination of international and domestic factors has culminated in a unique situation, where Australia, set to become the world’s largest LNG exporter by 2020, is now developing LNG import facilities.
Australian Industrial Energy has recently declared plans to build a LNG import terminal in New South Wales, highlighting severe structural issues in the Australian energy market. AGL Energy has also outlined plans to develop an LNG import terminal in Victoria by 2020-21.
“Despite an abundance of natural gas resources in Australia, a growing consensus among LNG stakeholders has determined that import terminal facilities will not only be economically viable, but will also be critical to energy security over several decades,” said Mr Jason Aravanis, Senior Industry Analyst at IBISWorld.
IBISWorld research shows the scale of the Oil and Gas Extraction industry has significantly increased over the past decade, with natural gas production in Australia increasing at an annualised 13.8% over the five years through 2016-17, to 105.2 billion cubic meters.
Although natural gas production has significantly increased, most of this production has been sold to export markets. Australian LNG exports have increased from 23.5 megatonnes in 2012-13 to an expected 61.6 megatonnes in 2017-18. However, over the same period, natural gas prices have significantly increased across the eastern seaboard.
“The unsustainable rise in gas prices has threatened the entire Australian economy, with utility costs significantly rising for manufacturing industries, and discretionary income for households declining due to rising household bills,” said Mr Aravanis.
“In particular, the Aluminium Smelting and Pulp, Paper and Paperboard Manufacturingindustries have been negatively affected. The development of LNG import facilities will potentially ease price pressure by increasing supply to the domestic market.”
The development of LNG import facilities has also been spurred on by a shortage of capacity in the Pipeline Transport industry. Although Australia has abundant natural gas resources, these deposits are predominantly concentrated in Queensland and Western Australia.
In contrast, the largest consumers of natural gas are industrial firms that are based in New South Wales and Victoria. IBISWorld research has found that access to pipeline capacity appears to be a barrier to entry for gas producers in Queensland seeking to supply to the southern states.
Previous regulatory changes to enable gas swaps and unlock pipeline capacity appear to have been ineffective. Western Australia has not suffered the same price pressure as the eastern seaboard, due to a regulated minimum domestic supply level on LNG producers in that state.
In October 2017, the Federal Government commissioned a pre-feasibility study for the development of a cross country pipeline that would link the western and eastern gas markets. However, IBISWorld research has indicated that this multibillion-dollar project would be less efficient than the development of LNG import facilities.
State restrictions on accessing onshore gas have also increased the need for LNG import facilities. This regulation has been concentrated on the Coal Seam Gas Extraction industry. Victoria currently bans all CSG extraction, and New South Wales has placed a moratorium on new extraction projects.
“The Federal Government has argued that state governments should increase gas supply by removing the moratoriums on unconventional gas extraction. The Federal Government has also imposed the Australian Domestic Gas Security Mechanism,” said Mr Aravanis.
“Over the next five years, the government may use this regulation to impose controls on LNG exports when the domestic gas supply has a shortfall. The regulation only applies to gas projects that are not net contributors to the domestic market. Currently, the Gladstone LNG plant, operated by Santos, is the only non-net contributor.”
According to IBISWorld, the Australian energy market’s outlook is mixed. The development of LNG import facilities is expected to ease gas shortages on the eastern seaboard. However, IBISWorld expects gas prices to remain well above their level from previous decades.
“As the local market is now linked to international trade, Australians will have to compete against foreign buyers for a share of Australian gas production. International gas prices have remained well above domestic gas prices in the past, meaning that Australian prices are expected to rise to parity with international prices for the foreseeable future” said Mr Aravanis.
IBISWorld Industry Reports referenced in developing this release:
- Oil and Gas Extraction
- Aluminium Smelting
- Pulp, Paper and Paperboard Manufacturing
- Pipeline Transport
- Coal Seam Gas Extraction
For more information, to obtain industry reports, or arrange an interview with an analyst, please contact:
Strategic Media Advisor – IBISWorld Pty Ltd
Tel: (03) 9906 3641 Mobile: 0422 773 995