Australian Spotlight - August 2024
Many see LNG as a bridge to greener energy. Less emissions than coal and more reliable than wind and solar. For Australia it has come out of nowhere to be a golden bridge. But there is debate over how long that bridge will stretch. It may end sooner than most think. Australia, however, may have got its timing just right.
The rise of LNG exports
For a long time natural gas was the poor cousin of oil and coal. Being a gas, it was harder and more expensive to extract, store, and transport. However, the OPEC oil shocks in the 1970s along with improvements in technology reignited interest in natural gas. The level of proven gas reserves have nearly tripled since 1980 while consumption of natural gas increased by 40% between 1975 and 1985 and is now more than triple its 1975 level. Consumption in the Asia-Pacific has increased by over 22x since 1975 and has tripled since 2000.
Up until 2020, pipeline exports dominated (see chart below). For decades, countries like Russia, Norway, Netherlands, Canada, and Algeria were able to export their excess gas to neighbouring countries by pipeline. The gas did not need to travel so far.
However, not every country lives next door to a friendly neighbour with huge gas supplies. Thus, as Japan, South Korea, and then China began to grow rapidly they looked to countries like Australia and Qatar to develop LNG export industries. The first LNG tanker was a WW2 US cargo ship in 1959, today fleets of dedicated LNG tankers ply the worlds’ oceans.
More recently, the war in Ukraine has forced Europe to substitute some pipeline gas from Russia with LNG from the US and Qatar.
The United States has long been the biggest producer and consumer of natural gas but until recently it consumed most of what it produced. In the early 2000s it even built LNG import terminals because domestic demand and pipeline exports from Canada were not expected to meet future US demand.
Fracking changed everything. The new technology (along with a higher oil price) unlocked previously uneconomic reserves of gas and oil. And once the US started to build LNG export terminals it has quickly moved towards the top of the list for global gas and LNG exports.
The rise of Australia’s LNG exports
The discovery of large gas fields in Australia’s North West Shelf in 1971 and 1972 (see map below) proved good timing with the Opec Oil shocks quickly increasing their economic importance. AUD 7.1 billion was invested in the first two phases, including sizable investment from Japan. At the time it was one of the largest oil and gas projects under construction in the world.
The first phase saw production for the local West Australian market in 1984 with transport by pipeline. LNG exports to Japan began in 1989, marking Australia’s first entry into the LNG market.