LNG is the new coal

[markslawson + 1,057]

This is an article I wrote for the Australian edition of the British magazine The Spectator

Its on the site now as energy notes. For non Australians puzzled by the locations mentioned on the coast of Western Australia, just think really, really remote.. and I'm not talking about an American remote but an Australian remote, as in 20 hours plus driving from Perth, the only city of any real size in the state of Western Australia..

NSW is New South Wales - the two cities mentioned in that section are on either side of Sydney.. Victoria is a state in the South East corner of the continent .. 

LNG is the new coal

Mark Lawson.

 

 

With the media spotlight focussed on activists, the Greens and even Pacific nations complaining about coal, no one seems to have noticed that Australian LNG exports are now double the value of thermal coal exports and are growing fast.

After analysing data collected by Australia’s Department of Industry Innovation and Science, the US Energy Information Administration declared in August that Australia would surpass Qatar as the largest exporter of LNG this financial year, as a succession of massive projects have come on line.

Although that achievement has long been expected, Australia may in turn have to fend off a strong challenge from the US, which is now developing its own succession of gigantic gas export projects to take advantage of the country’s fracking boom.  

That should add up to a shift in the markets with gas becoming cheaper and so more competitive against coal. Increases in conventional gas supplies have already affected demand for thermal coal (used in power stations) in the UK, which takes gas shipped over conventional pipe lines from Russia, as well as in the US, where the trend has been helped by Obama-era restrictions on coal plants. 

The latest Australian project to enter production is the Prelude FLNG for Floating Liquid Natural Gas platform, a nearly 500 metre long platform which liquifies natural gas for pumping onto ships. The $US10 billion plus facility sent off its first shipment from the Browse Basin, 475 kilometres offshore from Broome in Western Australia in June.

Prelude FLNG is, in turn, the latest in eight export LNG projects that have come on line from 2012 in Queensland, the Northern Territory and Western Australia to more than quadruple Australian gas exports. In contrast LNG exports from Qatar, an oil rich nation on the Persian Gulf side of the Arabian peninsula, have barely grown for years.

The June issue of the Resources and Energy Quarterly produced by the Office of the Chief Economist estimates that in the 2019-20 financial year to June Australia will sell $54 billion worth of LNG, with the bulk of the sales going to Japan, China and South Korea. In contrast, thermal coal exports were worth just $26 billion in the 2018-2019 financial year, as prices came off highs. Coal used in smelting which seldom receives any attention earned another $42 billion in the same period.

Although there are no more new LNG fields in the development pipeline, gas exports will continue to expand. The existing Ichthys project off the coast of the Northern Territory will undergo a massive phase two which will involve a nearly 900 kilometre undersea pipeline, and Woodside Petroleum is considering investing $44 billion in a series of projects, with the first phase involving the Scarborough gas field discovered in the 1970s but 375 kilometres north-west of the Burrup Peninsula, on the WA coast (between Port Headland and Onslow) in water nearly a kilometre deep. The second part involves further development of fields in the Browse Basin. A decision is to be made next year, with one advantage being that activists will have trouble objecting to or disrupting projects so remote from their suburban strongholds

Despite leaving Qatar in the dust Australia will have the US breathing down its neck with that country’s EIA also forecasting that country, now the third largest supplier, will triple its output this year as several new facilities come on line. Both Russia and Malaysia are also expected to increase production.

This all adds up to a huge increase in gas supplies but gas prices, or getting supply at any price, remains a problem for Australian domestic users. Businesses have declared that they will have to cease operations if gas prices do not fall and governments have insisted that export projects reserve gas for domestic use. Should Woodside go ahead with its projects about 15 per cent of production will be reserved for domestic use.

As often pointed out but ignored in all the complaints about energy prices is that gas production of the more recent developments were sold forward in long term contracts arranged when gas prices were lower. If coal seam gas production in Queensland falls short for any reason, for example, the long-term contracts come first, and domestic buyers may miss out.

One way around this is to connect Australia’s gas pipeline network with international markets to get the benefits of international spot prices. This requires  specialised docking facility for the LNG ships and, despite the vast gas resources being tapped in remote areas without direct pipeline connection, Australia does not yet have one. But there are several proposals.

In August, NSW planning minister Rob Stokes declared a Korean-backed $589 million GasDock project in Newcastle a project of critical state significance, providing it with a streamlined approval process. Another project in Port Kembla, backed by Andrew Forrest, already has planning approval and is expected to start operation in early 2021. Three other projects under consideration, two in Victoria and one in South Australia.

Will gas prices fall when those facilities are built? Its not that simple. North Asian spot market prices were above those of those Australian Eastern market for much of 2017 and 2018. Then there is the difference between the long-term contract price and spot prices, with the long term prices now being higher. The problem, as pointed out in various reports by the Australian Competition and Consumer Commission, is that Australia’s east coast had more supply before the LNG trains (production lines) in Queensland were built.

A better way to achieve lower prices, the commission noted in a statement in August last year, would be for the states to increase supply by allowing more gas projects. This the Victorian Labor government in particular has refused to do, banning even exploration in most of the state. All that said, the gas import docks and massive increase in international supply must have some effect on gas prices and that should benefit consumers, although perhaps not the coal industry.

 

 

Mark Lawson was a science writer for the Australian Financial Review. markslawson@optusnet.com.au  www.clearvadersname.com

Edited September 6, 2019 by markslawson
correcting a typo and addition info for US readers..

[NickW + 2,714]

11 hours ago, markslawson said:

This is an article I wrote for the Australian edition of the British magazine The Spectator

Its on the site now as energy notes. For non Australians puzzled by the locations mentioned on the coast of Western Australia, just think really, really remote.. and I'm not talking about an American remote but an Australian remote, as in 20 hours plus driving from Perth, the only city of any real size in the state of Western Australia..

NSW is New South Wales - the two cities mentioned in that section are on either side of Sydney.. Victoria is a state in the South East corner of the continent .. 

LNG is the new coal

Mark Lawson.

 

 

With the media spotlight focussed on activists, the Greens and even Pacific nations complaining about coal, no one seems to have noticed that Australian LNG exports are now double the value of thermal coal exports and are growing fast.

After analysing data collected by Australia’s Department of Industry Innovation and Science, the US Energy Information Administration declared in August that Australia would surpass Qatar as the largest exporter of LNG this financial year, as a succession of massive projects have come on line.

Although that achievement has long been expected, Australia may in turn have to fend off a strong challenge from the US, which is now developing its own succession of gigantic gas export projects to take advantage of the country’s fracking boom.  

That should add up to a shift in the markets with gas becoming cheaper and so more competitive against coal. Increases in conventional gas supplies have already affected demand for thermal coal (used in power stations) in the UK, which takes gas shipped over conventional pipe lines from Russia, as well as in the US, where the trend has been helped by Obama-era restrictions on coal plants. 

The latest Australian project to enter production is the Prelude FLNG for Floating Liquid Natural Gas platform, a nearly 500 metre long platform which liquifies natural gas for pumping onto ships. The $US10 billion plus facility sent off its first shipment from the Browse Basin, 475 kilometres offshore from Broome in Western Australia in June.

Prelude FLNG is, in turn, the latest in eight export LNG projects that have come on line from 2012 in Queensland, the Northern Territory and Western Australia to more than quadruple Australian gas exports. In contrast LNG exports from Qatar, an oil rich nation on the Persian Gulf side of the Arabian peninsula, have barely grown for years.

The June issue of the Resources and Energy Quarterly produced by the Office of the Chief Economist estimates that in the 2019-20 financial year to June Australia will sell $54 billion worth of LNG, with the bulk of the sales going to Japan, China and South Korea. In contrast, thermal coal exports were worth just $26 billion in the 2018-2019 financial year, as prices came off highs. Coal used in smelting which seldom receives any attention earned another $42 billion in the same period.

Although there are no more new LNG fields in the development pipeline, gas exports will continue to expand. The existing Ichthys project off the coast of the Northern Territory will undergo a massive phase two which will involve a nearly 900 kilometre undersea pipeline, and Woodside Petroleum is considering investing $44 billion in a series of projects, with the first phase involving the Scarborough gas field discovered in the 1970s but 375 kilometres north-west of the Burrup Peninsula, on the WA coast (between Port Headland and Onslow) in water nearly a kilometre deep. The second part involves further development of fields in the Browse Basin. A decision is to be made next year, with one advantage being that activists will have trouble objecting to or disrupting projects so remote from their suburban strongholds

Despite leaving Qatar in the dust Australia will have the US breathing down its neck with that country’s EIA also forecasting that country, now the third largest supplier, will triple its output this year as several new facilities come on line. Both Russia and Malaysia are also expected to increase production.

This all adds up to a huge increase in gas supplies but gas prices, or getting supply at any price, remains a problem for Australian domestic users. Businesses have declared that they will have to cease operations if gas prices do not fall and governments have insisted that export projects reserve gas for domestic use. Should Woodside go ahead with its projects about 15 per cent of production will be reserved for domestic use.

As often pointed out but ignored in all the complaints about energy prices is that gas production of the more recent developments were sold forward in long term contracts arranged when gas prices were lower. If coal seam gas production in Queensland falls short for any reason, for example, the long-term contracts come first, and domestic buyers may miss out.

One way around this is to connect Australia’s gas pipeline network with international markets to get the benefits of international spot prices. This requires  specialised docking facility for the LNG ships and, despite the vast gas resources being tapped in remote areas without direct pipeline connection, Australia does not yet have one. But there are several proposals.

In August, NSW planning minister Rob Stokes declared a Korean-backed $589 million GasDock project in Newcastle a project of critical state significance, providing it with a streamlined approval process. Another project in Port Kembla, backed by Andrew Forrest, already has planning approval and is expected to start operation in early 2021. Three other projects under consideration, two in Victoria and one in South Australia.

Will gas prices fall when those facilities are built? Its not that simple. North Asian spot market prices were above those of those Australian Eastern market for much of 2017 and 2018. Then there is the difference between the long-term contract price and spot prices, with the long term prices now being higher. The problem, as pointed out in various reports by the Australian Competition and Consumer Commission, is that Australia’s east coast had more supply before the LNG trains (production lines) in Queensland were built.

A better way to achieve lower prices, the commission noted in a statement in August last year, would be for the states to increase supply by allowing more gas projects. This the Victorian Labor government in particular has refused to do, banning even exploration in most of the state. All that said, the gas import docks and massive increase in international supply must have some effect on gas prices and that should benefit consumers, although perhaps not the coal industry.

 

 

Mark Lawson was a science writer for the Australian Financial Review. markslawson@optusnet.com.au  www.clearvadersname.com

With all these new developments and competition between major producers at this rate they will drive coal out of the market and be supplying gas at production cost. 

[markslawson + 1,057]

6 hours ago, NickW said:

With all these new developments and competition between major producers at this rate they will drive coal out of the market and be supplying gas at production cost. 

Nick W - I fact, gas has already pushed coal out of the UK market and has severely reduced its market share in the US but that's with piped gas from the North Sea and Russia in the UK's case and gas from the fracking boom in the US, but just how much it effects other markets depends on circumstances. Note I say prices relative to coal, which is still a very cheap energy source.. The best guess is that overall coal production and consumption will increase but it will lose market share to gas in a greatly expanding energy market. Domestic heating in China is a huge market, for example, and they want to convert it to gas because coal fires are a major contributor to smog in Chinese cities.. bring on gas.. 

[NickW + 2,714]

8 hours ago, markslawson said:

Nick W - I fact, gas has already pushed coal out of the UK market and has severely reduced its market share in the US but that's with piped gas from the North Sea and Russia in the UK's case and gas from the fracking boom in the US, but just how much it effects other markets depends on circumstances. Note I say prices relative to coal, which is still a very cheap energy source.. The best guess is that overall coal production and consumption will increase but it will lose market share to gas in a greatly expanding energy market. Domestic heating in China is a huge market, for example, and they want to convert it to gas because coal fires are a major contributor to smog in Chinese cities.. bring on gas.. 

Despite this gas consumption in the UK has actually fallen by about 20%

[markslawson + 1,057]

15 hours ago, NickW said:

Despite this gas consumption in the UK has actually fallen by about 20%

So it has - after it pushed out or severely reduced coal's share, of course. Since then the peculiar UK enthusiasm for wood burning, which counts as renewable and now accounts for about 10 per cent of electricity supply plus some wind and solar has reduced gas's share. Gas is much better suited to balancing wind and solar, than coal, as its more flexible - although the need to vary its output makes it mush less efficient, of course.. anyway, thanks for that.. 

[NickW + 2,714]

8 hours ago, markslawson said:

So it has - after it pushed out or severely reduced coal's share, of course. Since then the peculiar UK enthusiasm for wood burning, which counts as renewable and now accounts for about 10 per cent of electricity supply plus some wind and solar has reduced gas's share. Gas is much better suited to balancing wind and solar, than coal, as its more flexible - although the need to vary its output makes it mush less efficient, of course.. anyway, thanks for that.. 

I am no great fan of importing wood chips from North America either. 

Genuine waste wood from UK sources in small, preferably CHP plants is good. Similar arguments with biodiesel. Biodiesel from waste WVO is fine. Not so good if its from palm or other WVO which is suitable as food.