Qld's coal seam gas industry faces Qatar competition for Asia sales ...

Courier Mail:

Cheap Qatar gas threat looms

19 September 2009

Premier Anna Bligh was in full flight this week, lauding a burning bright future for Queensland coal seam gas and looking forward to a very nice contribution to the state's royalty coffers.

But Queensland coal seam gas hopefuls, so many of whom are aspiring to become big exporters of liquefied natural gas, had better make sure the sales contracts some of them have signed are rock solid.

And those who haven't yet got firm buyers would do well to quickly lock in long-term customers.

The go-ahead this week for the giant $43 billion Gorgon LNG project in Western Australia, and announcements of a string of sale contracts by the participants, which could garner $150 billion over the life of the project, makes things on the global LNG horizon look good.

A world hungry for Gorgon gas would also be hungry for Queensland LNG - seen as the state's next boom industry - wouldn't it?

The Premier on Thursday talked of Queensland LNG projects exporting as much as 40 million tonnes of gas a year. Maybe - one day.

LNG facilities take many years to progress from a glint in the eye to plants producing gas. And in the shorter term, there's an elephant in the room, as industry monitor EnergyQuest's Graeme Bethune called it recently, in the form of Middle Eastern gas gusher Qatar.

Queensland has five LNG projects under study that can be taken seriously at this point - though even some of these will probably fall by the wayside or merge with competitors.

The likely first off the rank, if all goes to plan, will be the small LNG Ltd-Arrow Energy plant planned for Fisherman's Landing near Gladstone.

Arrow's plan is to produce about three million tonnes of LNG a year from two small liquefaction "trains", as LNG processing lines are known. It is aiming to ship first gas by 2012.

Arrow's shares spiked more than 3 per cent yesterday on news that Norwegian shipping company Golar LNG Ltd had agreed to sell gas from the proposed Gladstone project to a subsidiary of Japan's Toyota Group.

Toyota Tsusho has agreed to buy around 1.5 million metric tons of LNG a year for 20 years from 2014, which is enough to underpin the project's first LNG processing train.

The other four big schemes are the Santos-Petronas project, that proposed by Origin and ConocoPhillips, the BG Group-Queensland Gas Co plant and Royal Dutch Shell's operation - which is also expected to take its base supply from Arrow's coal seam gas areas, in which Shell has a 30 per cent stake.

Each of these projects is hoping to eventually have three to five million tonnes-a-year trains, or at least two in quick succession, with each extra train having a big multiplier effect on the profitability of any LNG operation because the first trains in such large developments chew up huge amounts of capital.

That would be 60 million tonnes a year of LNG.

Premier Bligh talked of just 40 million tonnes when she announced this week's draft blueprint for the industry. That may reflect industry concerns that not all Queensland's hopefuls will get up, as well as worries about competition from Qatar and the recent plunge in US gas prices.

Estimates of world demand for LNG into the next decade or so vary widely. EnergyQuest's August Energy Quarterly said world LNG demand growth had averaged 7 per cent a year since 2003.

EnergyQuest consultant Andy Flowers predicts future demand will grow at 8.5 per cent a year.

This would take demand to 520 million tonnes a year by 2020, from 163 million tonnes in 2007.

But the Japanese Institute of Energy Economics forecasts growth averaging only 4.1 per cent to 4.9 per cent over that period, to reach 332-388 million tonnes by 2020.

Long before that, Qatar, likely to be the world's lowest-cost producer of LNG, is planning to churn out 77 million tonnes a year.

Australia at present produces about 20 million tonnes a year.

Gorgon is looking at 15 million tonnes and hoping to quickly add another 10 million tonnes, while Woodside and ExxonMobil, Santos and Oil Search - with their project in PNG - are also close to entering the market with large licks of production. Another worry for Queensland's gas industry is future LNG prices.

The state's coal seam gas groups looked to export markets to tap prices that have long been well above prices in Australian. But the financial crisis led to a dramatic fall in the price paid for US gas.

Prices have recovered somewhat in the last week, despite huge stockpiles, to about $US3.30 for 1000 cubic feet- still well short of the $US14 they commanded last northern hemisphere summer.

The risk remains that Qatar could aim its cheap gas at Asian markets, whereas it had been assumed it would target the US and Europe.

Which all means Queensland's hopefuls could find their preferred Asian markets a lot harder to crack, or offering lower prices, than they have long hoped.

See - Courier Mail - Cheap Qatar gas threat looms.