Increased long-term demand from Japan for liquefied natural gas (LNG) to compensate for damaged nuclear power capacity will give more impetus to Australia's LNG development boom, a Wood Mackenzie consultant said on Friday (April 15). Australia is in the midst of a massive LNG capacity build that could see it eclipse top exporter Qatar.
With eyes on rapidly rising demand in Asia led by China, energy firms are developing or have proposed projects that could take Australia's LNG capacity to around 160 million tonnes per year by 2020, nearly eight times the country's existing capacity.
Not all of those projects would be developed, analysts say, but increased demand from top LNG importer Japan means more of them will make it off the drawing board, said Simon Flowers, Wood Mackenzie's head of upstream corporate analysis.
"The prospects for those projects that are currently further away from getting development approval have improved - just because of what has happened," Flowers said.
"We certainly believe there is going to be slower development of nuclear going forward and gas is going to be the medium-term beneficiary, so undeveloped LNG projects with uncontracted gas in Australia and elsewhere now appear to have better prospects of development over the next few years."
Japan's Tokyo Electric Power Co (TEPCO) has already ramped up LNG consumption, buying a record volume in March, after the massive March 11 earthquake knocked out two of its nuclear plants and a number of thermal power stations.
Australia's LNG industry was likely to see the bulk of this year's merger and acquisition activity in Asian energy, Flowers said, with Japanese and Chinese energy companies among leading prospective buyers of equity stakes in projects in return for long-term gas supplies.
Such acquisitions could total anything between $5 billion and $15 billion this year, he said, based on previous M&A activity.
"Australia's projects have a total of around 50 million tonnes of gas output per annum potential that still needs to find a home - more than twice its current output," said Flowers. "So if Japan is seeking to import more LNG then Australia will be one of the natural places it goes to."
Striking long-term supply deals is a requisite for energy companies before they take investment decisions on building LNG projects. The deals give them guaranteed future income to underpin finance for construction.
Australia's LNG capacity would reach around 66 mtpa in 2020, Wood Mackenize estimates, up from around 21 mtpa now. But the consultancy's upside scenarios see supply reaching as much as 80 mtpa to 100 mtpa, Flowers said.
Among the factors that could contribute to Australia reaching the upside scenarios is how China and other countries in the region fare this decade in efforts to develop shale gas, Flowers said.
"For shale gas in countries in the region, the issues are technology and the supply chain support to develop the resource," Flowers said.
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