Asian Demand for LNG to Test Regional Suppliers' Capacity
Ed. note: This piece was published in Western Australian Business News on March 24, 2011
Japan’s nuclear energy woes have sent a ripple through the world’s natural gas markets as the energy hungry country sucks in more fuel to help plug the hole in its power generation capability.
Japan, which currently imports nearly 48 percent of the world’s total seaborne natural gas, is looking for big and immediate offsets to help fill the gaps in its power supply after 11 reactors were hit in the wake of the March 11 earthquake.
International oil and gas expert Michael Economides said in Perth this week Japan’s short-term demand for liquefied natural gas (LNG) would test producers in the region, including Australia.
But it also represents a huge opportunity as the disaster-stricken country ponders its power generation problems, including a possible reduced reliance on nuclear power and renewed focus on natural gas.
“But, in the short-term, Japan has to consider the very expensive option of bringing smaller turbines on to, or near, the stricken nuclear sites and power them with LNG to get supply going again,” said Dr Economides, who is a professor at Houston University and editor-in-chief of the Energy Tribune.
But this is a stopgap solution and Japan’s policy makers will be focused more on the country’s medium-term energy needs and reviewing the current generation mix.
Japan imports about 3.3 trillion cubic feet of gas each year and Dr Economides estimates this could surge to about 4.8tcf of imports to meet its fresh demands for natural gas.
This sharp increase in demand, exacerbated by the Libyan crisis, will also bump up process and skew the demand for current and new LNG tankers to the Asian region, according to one commentator.
Japan could also look to Russia’s natural gas pipeline supply in the short term, with Prime Minister Vladimir Putin stating this week Japanese companies could participate in the production of natural gas in eastern Russia.
Russia’s monopoly company, Gazprom, will divert some European-bound LNG deliveries to Japan. Russia has also pledged to supply coal and electricity to the country.
“The natural has component could jump to as high as 39 percent from current levels on 27 percent in the medium to long term as Japan realigns its energy mix,” Dr Economides said.
“The bigger picture is that it is not going to be pretty for nuclear; they were planning to go 37 percent nuclear power but this now seems unlikely. And they have to still make up the shortfall as result of the problems at the wrecked Fukushima plant.”
The shortfall has to be made up quickly and then, more sustainably. The brings Australia into the picture, led by big producers such as Woodside, operator of the Northwest Shelf.
Japan is Australia’s biggest LNG customer, followed by China. Last year, LNG production in Australia grew 5.1 percent on the back of increased global demand and the growth in domestic gas-fired generation.
Energy economics group, EnergyQuest said this month Australia’s LNG push was tipped to increase this year on the back of new LNG projects due in Queensland and WA.
In WA, Woodside’s 4.3 million tonnes per annum Pluto project on the Burrup Peninsula is on track for an August start-up. The 10mtpa Browse project, due to be operated by Woodside in a joint venture, is earmarked for development at James Price Point, north of Broome, with a final investment decision due in mid-2012.
Construction work on the giant 15mtpa Gorgon gas project on Barrow Island is well underway with the expansion to 25mtpe on the cards. Wheatstone LNG is also planning a 15mtps plant new Onslow, with final investment decision due later this year.
Dr Economides, on a speaking tour in Perth in conjunction with Australian-based environmental and engineering firm OTEK, said he seriously doubted whether Australia was ready for the huge challenge presented by China and Japan.
While not naming anyone, he said he had spoken to politicians on both sides, state and federal, and was not convinced they fully grasped the enormity of the challenge presented by China.
“Australia is in a unique position to capitalise on this opportunity. The Australian government needs to very proactive on this and position the country to welcome companies to make it happen” Dr Economides said.
“There have to be huge incentives in place to get a slice of this 9tcf. This is bigger than anything Australians have in the past and it should be government policy that the country becomes an energy hub.”
Analysts in the US have been surprised by China’s natural gas goals. They estimate its impact over 10- years might be a more modest 6tcf, still substantial by current production levels.
Dr Economides was also dismissive of Prime Minister Julia Gillard’s plans to introduce a carbon tax, arguing it would not make a jot of different to hydrocarbon producers in other parts of the world, particularly China.
He said there were no real alternatives to hydrocarbon fuels in the foreseeable future and confidently predicted Australians would ultimately dump a carbon tax or similar scheme.
The biggest suppliers of LNG to Japan in 2010 were: Malaysia (14 million tonnes per annum); Australia (13.3mtpa; Indonesia (12.8mtpa); Qatar (7.6mtpa); Russia (6mtpa); and the United Arab Emirates (5.1mtpa).
One of Australia’s big future competitors, Qata, was tipped to increase its exports to Japan substantially in 2011. More imports in the short term could also come from countries such as Trinidad, Algeria, Egypt and Nigeria.