US shale gas may become export rival to Australia
In a positive indicator for BHP Billiton's petroleum business, the US Department of Energy gave conditional approval for the Freeport LNG project in Texas to export to nations that do not have a free trade agreement with the US.
The US has traditionally been reluctant to allow energy exports, given the nation has needed imports to meet its energy needs, but the recent shale boom has created a gas glut that has allowed the nation to consider more exports.
While the approval relates to just one LNG project, it is seen as an important indicator for how the US government will judge close to 20 other applications to export LNG.
BHP could benefit from relaxed export rules after buying $20 billion worth of shale acreage in the US in 2011. Because of the gas glut, BHP wrote down a record $US2.84 billion on those purchases in 2012, but a freer attitude towards exports could rebalance supply and demand across the sector.
In November, BHP said it was "studying" the viability of exporting gas from the US, and last month BHP chairman Jac Nasser called for more exports out of the US. He said: "They should encourage the export of their onshore oil and gas, because that will have geopolitical benefits around the world, apart from the fact that it would create a lot of very highly skilled jobs."
But the emergence of the US as a supplier to gas-hungry nations such as Japan and Korea could threaten the chances of more gas projects being approved in Australia, where billions are being spent on projects in Queensland, Western Australia and the Northern Territory.
British bank Barclays recently predicted the US could be exporting as much gas as Australia within 12 years if the relaxation of export rules continued as expected.
Australian gas projects are considered among the world's most expensive to build, and increased competition from low-cost producers in the US will only make it harder for Australian projects to get off the ground.
Excessive costs have already been cited as the reason for Woodside Petroleum to reject plans to build a big gas hub at James Price Point near Broome.
The Freeport LNG project boasts Dow Chemical and Japanese power companies among its owners, and will require a further approval from the US Federal Energy Regulatory Commission before it goes ahead.
The news comes just days after new BHP chief executive Andrew Mackenzie announced that his cost-cutting drive would include cuts to the amount of annual capital spending on the US shale business.
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The US Department of Energy gave conditional approval for the Freeport LNG project in Texas to export liquefied natural gas (LNG) to countries that don’t have a free trade agreement with the US — a sign the US may allow more LNG exports and could influence global gas supply and pricing.
If US export rules continue to relax, low‑cost US shale producers could compete with Australia. The article says that increased US supply could make it harder for Australia’s expensive gas projects to get off the ground and could threaten plans being developed in Queensland, Western Australia and the Northern Territory.
Although the approval covers just one project, it’s seen as an important indicator for how the US government will judge close to 20 other LNG export applications, potentially clearing the way for more US LNG exports if similar decisions follow.
BHP paid about $20 billion for US shale acreage in 2011 and took a US$2.84 billion write‑down in 2012 because of the gas glut. Relaxed US export rules could rebalance supply and demand and potentially benefit BHP, which has said it is studying US gas export viability and whose chairman publicly supported more exports.
The Freeport LNG project includes owners such as Dow Chemical and Japanese power companies. It received conditional approval from the US Department of Energy but still requires further approval from the US Federal Energy Regulatory Commission (FERC) before proceeding.
Barclays predicted that if US export rule relaxations continue as expected, the US could be exporting as much gas as Australia within 12 years, highlighting potential long‑term competition for export markets.
The article notes that Australia’s high project costs have been a factor in decisions like Woodside Petroleum’s rejection of plans to build a large gas hub at James Price Point near Broome. Increased competition from lower‑cost US producers would likely add further pressure.
New BHP chief executive Andrew Mackenzie announced a cost‑cutting drive that includes cuts to the amount of annual capital spending on the company’s US shale business — a sign BHP is adjusting strategy in response to market conditions.
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