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Australia in line for world's largest LNG producer crown

Australia has enough gas reserves to overtake Qatar as the world’s largest liquefied natural gas (LNG) producer, according to Santos

Kwok W Wan, LONDON

Australia is investing billions of dollars in new LNG production projects with the aim of meeting growing Asian demand – capacity could overtake Qatar’s 77 million tonnes a year (t/y) in the next 10 years. But there are doubts over whether the country’s coal-bed methane (CBM) reserves – known domestically as coal seam gas – can supply all the new projects planned at Gladstone, Queensland.

Santos chief executive David Knox rebuffed such claims. “If you’ve sold the gas, it’s in the ground. You would not be able to get buyers, because they’re conservative, unless you have the gas in the ground,” he told reporters on the sidelines of London’s Oil and Money conference.

Santos is developing the $16 billion Gladstone LNG (GLNG) project with Malaysia’s Petronas (27.5%), French major Total (27.5%) and South Korea’s Kogas (15%). GLNG is expected to have 7.8 million t/y production capacity from 2015, and has supply contracts with Kogas (3.5 million t/y) and Petronas (2 million t/y).

But with four other Queensland CBM to LNG projects being developed at the same time as GLNG, companies have been scrambling to secure reserves to supply projects.  Shares in Metgasco, a New South Wales CBM developer, jumped by over 50% last week on the back of take-over rumours, while Santos acquired CBM player Eastern Star Gas in July for $920 million to boost its own reserves.

Carbon tax

Along with the extra gas needed for CBM to LNG, the introduction of an Australian carbon tax is likely to increase the number of utilities fuel switching to gas from coal, increasing domestic prices and putting pressure on exporters profit margins. The carbon tax bill narrowly passed the lower house of the federal parliament on Wednesday. MPs voted by 74 to 72 in favour of the bill, which now goes to the Senate.

“In producing LNG, if we produce carbon, we have to pay the carbon tax, which we are unable to pass on through the price. We will have to put it on our balance sheet,” Knox said.

But Santos remains confident that Australia will become the world’s largest LNG producer within 10 years. “The 75 million t/y in 2018 is approved projects and the majority of that [LNG] is already sold. That is going to happen. Beyond that, there is one other project that will probably be approved this year. So 100 million t/y is not pie in the sky, it’s probable by 2020,” Knox claimed.

Labour and raw-materials pressures, as well as nagging doubts over Asian demand, have cast doubt over the need for all of Australia’s LNG projects. Woodside’s 4.3 million t/y Pluto project has already experienced a number of delays and budget overruns

Japan and South Korea are the world’s largest LNG importers, and while China is expected to increase gas consumption, it may not all come from LNG as the world’s largest energy user looks to develop its shale-gas assets as well as increase pipeline imports from Turkmenistan and, possibly, Russia.

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