Meet LNG Opportunities in Australia
Editor”s Note: Vicky Ben Snow is our new Beijing Corespondent
China has an insatiable appetite for resources of all sorts and Australia is a handy locale for many. After iron ore, which has dominated trade and headlines what will be the next connection between China and that country? Obviously, natural gas for energy.
It is also the opinion of Australian Trade Minister Craig Emerson, who called LNG “tomorrow”s iron ore” when he met with Chinese investors in July. Emerson spoke not only for LNG prospects in Australia today, but also for the potential of satisfying future Chinese demand.
Today, Australia is the fourth LNG producer in the world with 9 percent of the global LNG output, mainly shipped to Asia. After the Fukushima nuclear accident, Australia appears to be cranking up its efforts to develop its natural gas for the post-earthquake Japanese energy demand for both the immediate and long terms.
The key Asian markets for Australian LNG have changed in the past three years. in Asia. Japan and Korea, both lacking domestic resources appear to reduce their natural gas demand both because of economic and population growth reasons. On the contrary, the Chinese market, ever increasing, is becoming more and more important for Australia.
The challenge to Australian dominance comes from Qatar and Indonesia, old friends of China in the LNG trade. But there was never a real keen competition between Qatar, Indonesia and Australia before the US shale gas revolution and the substantial increase in US natural gas supply and decrease in price. When Qatar could not get a good price in the US, China provided a better option. Compared to Australia, Qatar and Indonesia have low production costs and also a huge actual production capability.
However, Australia has a real advantage of the smaller shipping distance to China and a very large potential for increased production capacity.Australia is putting a much larger effort on its LNG development. They need plenty of investment capital to deal with their production buildup, high production cost, and even with climbing exchange rate.
“We have a fit capital market for enterprises of resources”, said Alan Eggleston, chair senate economics reference committee, “but it is far enough to meet the financial gap for our resource industries.”
Resource industries, including natural gas, in Australia are always supported by foreign investment. They start by assets, then survive on money from the US, the UK, Japan and, recently, from China.
China inherited the role of financier during the financial crisis. Each country rich in resources felt that role that China is the bank when they need money; so did Australia.
Investments from China will not be of benefit just to Australia.
China needs to consume more gas both because of the implicit increase in demand but also because of the pressure to reduce carbon emissions. But China must exhibit enough will to promote natural gas use.
“We won”t make gas use widely enough unless we get prepared”, said a manager of CNOOC, the largest importer of LNG in China.
China is trying to keep a measured speed. When percentage of natural gas in the total energy consumption in China got 8 percent in 2009, it was pushed back to 4.2 percent immediately in 2010.
The fact is that China has a real increasing demand of natural gas. Starting to be a net importer of natural gas in 2006, imports never stopped. The Chinese avoided thinking about foreign dependence before 2009. Imports of LNG escalated to 5.53 million tons in that year, a 66 percent growth over 2008. Even more, China might acquire another foreign dependency over 50 percent by 2020, as it happened with petroleum and iron ore.
It is the opportunity of the century for China, especially in Western Australia (WA). The Premier of WA Colin Barnett said that they will not provide more projects beyond those that are already in schedule.
Of course chances come with risks. For the numerous intensive investments during the financial crisis, Australia alarmed the Chinese capital. Because more tax were levied during the last year for the excuse of getting a suitable benefit as the owner of resources. Luckily for China, there are no new taxes on Australian natural gas at present. However, even local business is worried about whether the government would attempt to raise more easy money from taxes.
There is a recipe from Colin Barnett, “get minority holdings, perfect under 19.9%, in big projects”. “China could share risks with its cooperation as well as escaping from some potential limits for investing in our resources”, he said.