Australia, a Top Natural-Gas Exporter, Considers Imports to Stop Blackouts

Australia is experiencing an energy crisis so severe that the country, one of the world’s biggest exporters of liquefied natural gas, is considering imports to shore up supplies for manufacturers and avoid possible blackouts. The country’s commitments to sell LNG overseas as well as the shuttering of aging coal-fired plants have made it a struggle for electricity producers at times of peak demand. Some of Australia’s manufacturers have threatened to move production overseas to escape a costly and unreliable energy supply.

Sydney, Melbourne and other cities on the country’s eastern coast have experienced occasional blackouts, hitting everything from health clinics to schools. Analysts predict a widening shortfall of LNG, raising concern manufacturers won’t have enough power to run food-processing factories or chemical plants. While Australia is rich in natural gas, it lacks a nationwide network of pipelines to supply users at affordable rates. The fuel is super-chilled into LNG for shipment around the country and abroad. Australia is projected to export 80.73 million metric tons of LNG this year, compared with 70.23 million metric tons in 2018, according to the research firm Wood Mackenzie. The electricity blackouts occurred as Australians endured a scorching Southern Hemisphere summer, with heat waves across the country that were unprecedented in scale and duration. On a couple of days in January, the temperature in Sydney reached 108 degrees Fahrenheit. This year, the country recorded its warmest January-through-May period ever, according to the Bureau of Meteorology. Electricity use for cooling spikes with such temperatures, but it isn’t only in summer that demand for LNG can outpace supply. In the southern city of Melbourne, gas supplies are at their tightest in the winter when demand for heating kicks in.

The Australian Industrial Energy consortium plans to lease this floating storage and re-gasification vessel to process natural gas imports. PHOTO: SQUADRON ENERGY

Climate change became a central issue in Australia’s latest election campaign following a summer of wildfires, drought, floods and extreme temperatures. Voter support for policies targeting climate change was at its highest level since 2007, though it wasn’t enough to save Australia’s center-left party, which put the issue at the heart of its campaign. It was defeated by the incumbent conservative government in the May election on fears ambitious environmental targets would boost the cost of living and hurt the country’s coal industry. Several state government have restricted gas developments due to environmental concerns. Proposals to prevent energy shortages involve supplying regions in need with LNG from elsewhere in the country and even from overseas. Those looking to import LNG include a billionaire entrepreneur who made his fortune shipping iron ore to China, U.S. energy giant Exxon Mobil Corp. and Australia’s biggest power retailer, AGL Energy Ltd. They are planning to use vessels to store LNG, before heating it to supply customers directly or through local gas-transmission networks. Their goal is to offer a stable supply of fuel that can help prevent blackouts. Andrew Forrest, the billionaire who in a decade built Fortescue Metals Group Ltd. from a tiny natural-resources explorer into the world’s No. 4 iron-ore exporter, has said that a floating import terminal costs a fraction of what would be required to connect eastern Australia with offshore gas fields in the western part of the country via a pipeline.

World BeaterAustralia is set to become the world’s topproducer of liquefied natural gas after adecadelong $200 billion investment spree.Global liquefied natural gas supply
.million metric tons a yearAustraliaRest of world2011’12’13’14’15’16’17’180100200300

Average natural gas price for industrialand commercial users in Australia*
.Australian dollars a gigajoule2016’17’186789$10

LNG netback price in Australia†Sources: Wood Mackenzie (supply), AustralianCompetition and Consumer Commission (industrialprice and netback price)*Under longterm contracts in Australia’s eastern-coast market.†Netback is a benchmark export-parity price.Note: A$1 = US$0.70
.Australian dollars a gigajoule2016’17’18’$15.0

Australian Industrial Energy, a consortium of domestic and foreign companies that counts Mr. Forrest’s Squadron Energy as its biggest investor, recently received government approval for an import terminal in Port Kembla, an industrial hub south of Sydney. The consortium, which includes several Japanese investors, has arranged to lease a storage vessel almost 1,000 feet in length. It plans to spend as much as 250 million Australian dollars ($174 million) on infrastructure to berth the unit and connect it with a gas-transmission network on the eastern coast. The plan is one of five proposals for storage and re-gasification vessels across southeastern Australia.


Some local commentators mock the push for imports, given that Australia is on track to overtake Qatar as the world’s top exporter of LNG by volume this year following a decadelong investment boom. One Sydney radio station “described me as bonkers” when outlining Squadron Energy’s vision, said Stuart Johnston, Its CEO and a former Royal Dutch Shell senior manager.

Executives at Squadron Energy envisage using gas shipped from Australia’s northwestern coast, about 3,000 miles from Sydney and Melbourne, reflecting the lack of cross-country pipelines and the huge cost to build them. Yet Mr. Forrest and AGL Energy also see an opportunity to source gas from farther afield, including the U.S. U.S. exports of LNG rose 68% in the first four months of 2019, compared with the same period a year earlier. Trade tensions between China and the U.S. may actually play in Australia’s favor. Beijing has levied tariffs on U.S. LNG in response to Washington’s raising tariffs on Chinese imports. U.S. LNG could be diverted to new markets such as Australia if the added cost puts off Chinese buyers. The trade conflict “probably makes people trying to sell gas to Australia even more attractive,” Mr. Forrest said. Australia’s eastern coast is abundant in gas, primarily at coal fields, but policy makers nearly a decade ago didn’t ensure enough supply would remain at home as they approved plans for a combined $50 billion worth of processing plants to export fuel to such countries as China and Japan. Natural-gas costs have roughly tripled in eastern Australia in recent years, leading to warnings of factory closures and job losses. The Australian Energy Market Operator, the nation’s electricity overseer, forecast in March a potential gas shortfall in eastern states beginning in 2024. Others see the shortfall happening sooner. LNG imports are urgently needed in Sydney and Melbourne to reduce risks of a shortage, said Graeme Bethune, chief executive at Australian energy advisory firm EnergyQuest.

The five import terminals under study are proposed to start up between 2020 and 2022 near major cities. The Australian Industrial Energy consortium said its terminal would supply the equivalent of more than 70% of annual gas demand in New South Wales, the country’s most populous state. Exxon said it is considering an import terminal near Melbourne, although it prefers to supplement gas supply for the domestic market by finding new deposits or squeezing more from existing fields.

Australia could learn from the U.S. and focus on several supply-and-demand hubs in a national network, according to Nigel Hearne, Chevron Corp. ’s president of Asia-Pacific exploration and production. “I would see one, two or three terminals on the east coast as just being other nodes in that network,” he said.

But some worry that the cost of importing gas is too high, and investors could be overestimating what consumers are prepared to pay. “After overbuilding LNG export capacity, eastern Australia is now at risk of overbuilding LNG import capacity,” said Saul Kavonic, a Credit Suisse analyst. “There isn’t sufficient domestic demand to justify all five LNG import terminals being built.” Write to Rhiannon Hoyle at rhiannon.hoyle@wsj.com and Robb M. Stewart at robb.stewart@wsj.com https://www.wsj.com/articles/australia-a-top-natural-gas-exporter-considers-imports-to-stop-blackouts-11559830044?redirect=amp#click=https://t.co/KuDmR4F8hR

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