In response to the region’s struggles with limited gas supplies, high costs, and competition from gas-starved European customers, major natural gas producer Australia said it may reduce its exports of Liquefied Natural Gas (LNG).
Australia attempted to reduce its international sales in order to increase domestic consumption in anticipation of a predicted shortage of local supplies in 2019.
As energy protectionism gains ground throughout the world, the Australian Competition and Consumer Commission this week urged Canberra to safeguard local gas supply and limit LNG exports after estimating that the country’s east coast may run out of gas by 56 petajoules (1 petajoule = 278 million kilowatt hours of electricity) in 2019.
The Asia-Pacific region has been contending with rivalry for fuel from European consumers wanting to replace Russian gas that is subject to obvious restrictions.
These European nations have outbid some less developed Asian nations in the race for LNG to ease a pipeline gas scarcity before the upcoming winter season.
Gina Cass-Gottlieb, chair of the ACCC, stated last week that “we are proposing the Resources Minister launch the first phase of the Australian Domestic Gas Security Mechanism (ADGSM) to preserve energy security on the east coast.”
“We also highly advise LNG exporters to start supplying more to the [local] industry right away.”
The majority of the gas utilized on Australia’s east coast is generated by businesses that also export LNG to the Asia-Pacific region and other nations as well. In the event that there is a domestic shortage, the ADGSM prevents certain producers from exporting LNG.
While the overwhelming of LNG sales to international clients are under long-term contracts, Australian LNG manufacturers also offer spot sales revenue on an ad-hoc basis and non-contracted LNG. Countries are forced to buy through the spot market if they are not able to negotiate lucrative long-term contracts.
The ACCC advises producers to reserve this supply for local customers rather than selling it on the international market, which is now flooded with gas-starved purchasers.
Although the ACCC had issued a warning, the Australian Petroleum Production & Exploration Association, a lobbying organization for the gas sector, claimed that there would be more than enough gas for the upcoming year and that there has never been a shortage to calm the markets.
“There has undoubtedly always been an excess of gas entering the domestic market throughout the lifespan of the export industry. So, we were successful in achieving both. We reject the notion that there is a choice between the two, acting CEO Damian Dwyer said on Tuesday’s episode of “Squawk Box Asia” on CNBC.”
“The export industry has received a lot of investment. Additionally, such investments have significantly increased domestic supply. The two are in tandem.”
However, analysts claim that if the mechanism is well used, additional supply and cost constraints will be felt by the region’s largest consumers, such as Japan and South Korea, as well as LNG importers who are just getting started, like the Philippines.
In accordance with the Platts JKM pricing index, the price of LNG has increased by almost 80% since the beginning of the conflict in Ukraine in late February.
Since April, there have been “no tender transactions from the 3 major LNG export services on Australia’s east coast, showing that some exports were declining,” according to Kenneth Foo, regional manager for S&P Global Industry Intelligence APAC LNG pricing.
As a result, the supply of LNG in the Asia-Pacific region could become even more constrained, especially as Q4’ peak winter demand time approaches, according to Foo.
According to Sam Reynolds, an expert at the Institute for Energy Economics and Financial Analysis, developing Asian nations like Bangladesh and Pakistan were forced to abandon their plans to purchase LNG on the spot market.
“These countries’ inability to obtain LNG volumes has resulted in fuel shortages and outages, bringing them to the verge of economic collapse,” he said.
The Philippines, new to the import industry, will face difficult conditions when it attempts to acquire its first supply of LNG, he continues.
New ports and LNG-fired power plants could become idle and stranded if LNG cannot be purchased at reasonable prices, he warned.
According to Reynolds, these hiccups might jeopardize the Philippines’ efforts to strengthen its LNG industry, which has already had years’ worth of obstacles.
Although nations without long-term agreements, like the Philippines, may suffer, the LNG supply in the region is largely secure.