Australia and PNG gas exporters are likely to win only a portion of the expected growth in demand for gas in Asia, as buyers shift their focus to new supply sources, an analyst has warned.
The shift is expected as newer exporters, principally in north America, enter the market offering cheaper gas. Also, the blowout in the cost to develop export projects in Western Australia has undermined the competitiveness of local exporters, which will leave more projects only marginally viable.
Australia is becoming the world's largest exporter of liquefied natural gas. It is on track to surpass Qatar's 90 million tonnes of annual shipments as a slew of projects in Queensland, the Northern Territory and Western Australia come on stream.
Of the expected 65 million tonnes of potential demand in Asia over the next several years, the underlying level of "free demand" is likely to be about 40 million tonnes, said David Hewitt, Credit Suisse's co-head of oil and gas research, and a former gas marketer.
Australia will compete with Canada, the US and East Africa to supply this gas, he said. "The buyers always want to diversify their portfolio of supply ... it's a security of supply question, and it's an attempt to dilute seller concentration. For that reason, the Asian buyers are not going to allocate all of that 40 million tonnes ... to Australasia [Australia and PNG].
"At best, Australasia could compete for 10 million tonnes ... In simple terms, we've done our dash."
Asian buyers such as Japan and India have become increasingly vocal about the Asian price of gas imports of $US13-$US16 per mmBtu (million British thermal units), which is significantly higher than the European price of about $US7-$US10 per mmBtu.
The domestic US price is about $US4, to which needs to be added processing, shipping and related costs. That would push the price closer to $US10 per mmBtu.
Even so, Mr Hewitt said the premium of about $US4 per mmBtu paid in Asia could decline, but it would not disappear. He reckoned it would halve to about $US2 over the next decade or so.
So far this year, the US has approved four export gas projects to supply non-free trade agreement countries. Additionally, on Canada's west coast, a further round of projects are trying to get off the ground. British Gas is also working on a 1 million tonne a year project, Prince Rupert.
Mr Hewitt also cautioned over the future of floating LNG, given the infancy of this technology. Woodside and ExxonMobil have signalled they will use the technology for the Browse and Scarborough projects off Western Australia, although Mr Hewitt said Exxon would be "very disciplined in its development in what is a step-out of a step-out technology".