Obama's gas push to pump up Santos and Origin

Cheap US gas has fuelled talk of dire consequences for Australia's LNG exporters. Obama's plan to ramp up US demand could change those dynamics.

Australia’s coal seam gas suppliers have a new ally.

US President Barak Obama’s policy drive this week to ramp up America’s liquid natural gas industry ultimately could benefit Australia’s rapidly expanding export industry.

While the sudden emergence of low cost American LNG has sparked a barrage of doomsday scenarios for the Australian industry, it could well be that Australian coal will be the industry most affected by the US push to switch to LNG.

American export LNG prices at $10 per thousand cubic feet, are around 50 per cent cheaper than typical export contracts written by Australian producers.

Three consortia are engaged in building export terminals at Curtis Island near Gladstone in Queensland collectively investing $45 billion which critics now claim could be uneconomic if North American gas is exported into the Asian region.

The US President’s federal initiatives this week went further than encouraging the use of natural gas in heavy transport. He specifically targeted reductions in carbon emissions from power stations, the first time this has been mooted.

In particular, Obama advocated a switch in fuel from coal to gas in power generation.

Increased American domestic demand could soak up a large portion of the US gas currently slated for production and this could restrain regulators from issuing export licences.

According to a JP Morgan report earlier this month that rebutted the doomsday scenarios, US regulators are grappling with a powerful lobby urging the use of American gas to deliver a competitive advantage to US manufacturing industries. The argument goes that the gas would best be used to produce value added exports rather than the lower value commodity.

In addition, there is a serious push for energy self-sufficiency in the US that is likely to override those pushing to take advantage of the current price differential between US and Asian markets.

The two biggest beneficiaries of this week’s US initiative will be Santos and Origin.

Santos is working in partnership with Petronas, Kogas and Total while Origin is in a consortium with ConocoPhillips and Sinopec. The third consortium is led by the UK based BG.

With a sharp uptick in domestic usage, American gas prices are unlikely to maintain the discount they have enjoyed in the past year.

Australian operators also are likely to benefit from a depreciating currency as the US economic recovery gathers steam.