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 the producers outside the Middle East. This boost will likely last for many years after the conflict ends.
Australia is one of the biggest beneficiaries, having last year dropped to third place in the world for super-chilled fuel exports behind the United States of America and Qatar.
The 'effective closure of the Strait of Hormuz' has stopped Qatar from exporting?LNG, which means that it is likely to lose its second place this year back to Australia, even if the waterway is reopened and shipments resume.
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 'likelihood' is that LNG supplies will be constrained, even though new projects are being commissioned in the United States. This is because several of Qatar’s LNG plants were damaged by Iranian attacks. Repairs could take as long as five years.
Australia's LNG manufacturers have long claimed that the country faces a risk of losing investments due to a combination?of excessive regulation surrounding developing new natural gas supply, excessive environmental activism, and a federal centre left Labor Party government which is more concerned about climate change than energy safety.
The mood has changed, with speakers at the Australian Domestic Gas Outlook Conference this week in?Sydney expressing their optimism that the Iran Conflict presents opportunities that should not be wasted.
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-running tensions between LNG exporters, and the domestic gas industries that 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 ensure a domestic supply of gas at a competitive rate, without flooding the market. This will drive the price below the point where Australian producers would not be profitable.
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 domestic markets.
The supply of gas would increase if new basins, like the Beetaloo, were to be developed. This would allow for a greater utilisation rate at existing plants, and even the possibility of supplying 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 been 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 must prioritise energy security above climate ambitions.
The closure of the Strait of Hormuz has put the supply of liquid fuels, such as gasoline and diesel, at risk.
It's also true that many of the countries who buy Australian coal and LNG are the same ones that provide the crude oil used to make the fuels that travel through 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 same way that the Iran War offers Australia the opportunity to boost its LNG sector, policy mistakes also pose a threat.
Both the left and right of politics are putting immense pressure on the federal government to impose an windfall tax for LNG exports.
The 'industry' argues that any short-term hit to Australia from increased tax revenue would be "more than offset" by the damage done over time to Australia as a stable jurisdiction.
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)
