Russell: The war between Iran and the ROI is both a boon and a danger to Australia's LNG.
The U.S.-Israeli war against Iran changed the global market of liquefied gas (LNG), giving a boost to producers outside the Middle East. This boost will likely last for many years after the conflict is over.
Australia is one of the biggest beneficiaries, having slipped last year to third place in the world's exports of super-chilled gasoline behind the United States of America and Qatar.
The Strait of 'Hormuz is effectively closed, and Qatar has no LNG exports. This means that Qatar will likely fall to second place behind Australia in this year even if it reopens the 'narrow waterway.
Asian spot prices are a short-term boost for Australia's LNG producers.
Spot LNG prices for North Asia were $19.30 per million British Thermal Units (mmBtu), down from the four-year high price of $25.30 in the previous week. However, the price was almost twice as much as the $10.40 that had been paid the week before.
The rise in spot prices and even in long-term crude oil contracts will boost the profits of Australia’s LNG producers.
The damage to Qatar's LNG facilities by Iranian missiles is estimated to take five years for repairs. This means that LNG supplies will remain limited even if new projects are launched in the United States or elsewhere.
Australia's LNG manufacturers have long claimed that the country faces a risk of losing investments due to a combination excessive environmental activism, overly burdensome regulations around developing new natural gas supplies and a federal centre left Labor Party government concerned more with climate change than security of energy.
The mood has changed, with speakers at the Australian Domestic Gas Outlook Conference this week in Sydney expressing optimism about the opportunities presented by the conflict between Iran and the West.
One of the most important is to use Australia's excellent reputation as a reliable supplier of LNG to Asia in order to attract additional capital for both onshore and off-shore natural gas reserves.
This would resolve the long-standing tension between the LNG exporters and domestic gas companies, who have blamed export plants for tightening up the local market and increasing prices.
The industry is in favor of a gas reservation policy for Australia’s eastern states.
It is important to maintain a domestic gas supply at a competitive rate, while not flooding the market to the point where it would make producers unprofitable if they only sold to the Australian market.
The LNG industry would benefit greatly from regulatory stability if the federal government and the state governments could agree on a way to supply the East Coast markets.
Three LNG plants are located on the east coast of Australia, and they use approximately 75% the natural gas available. The remaining 25% is supplied to the Australian domestic market.
The supply of gas would increase if new basins, like the Beetaloo, were to be developed. This would not only meet the domestic demand, but also allow for increased utilisation at existing plants, and even new LNG export trains.
MINDSET SHIFT
The design of a system to meet the needs of the domestic market and ensure that the LNG plants are able to maximize their output may appear simple, but the issue has remained unresolved since more than a century.
The key will be to change your mindset. The current conflict in Iran is the trigger.
There are indications that the federal government will need to shift its focus to energy security, rather than climate ambitions.
The closure of the Strait of Hormuz has put the supply of liquid fuels like diesel and gasoline at risk.
It's also true that many of the countries who buy Australian coal and LNG are the same ones that provide the fuels from the crude oil that crosses the Strait, including Japan, South Korea, and Singapore.
The countries concerned will be looking for assurances from Australia that it will continue to deliver refined fuels, just as Australia is seeking assurances of continued shipments.
The Iran War offers Australia the opportunity to boost its LNG sector. But policy mistakes can also pose a threat.
Both the left and the right are putting pressure on the federal government to impose an export tax.
The industry claims that any short-term hit to Australia's image as a safe jurisdiction for investment will be "more than offset" by the damage done in the long-term.
This argument is valid, but it will be difficult to win against a populist money grab, as politicians will do what they think will appeal to the voters, regardless of whether or not their policy is good.
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These are the views of the columnist, an author for.
(source: Reuters)
