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The Daily Reckoning

Natural gas booming in Asia

Natural gas is becoming an increasingly popular source of energy in Asia. Soon, Australia may compete with Qatar as the biggest exporter of liquefied natural gas.

By Chris MayerGuest blogger / June 3, 2011

Gas storage units in Berlin are shown in this December 2009 file photo. As Asia's appetite for liquefied natural gas grows, who will step in to supply?

John MacDougall/AFP/Getty Images/Newscom/File

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Even before the Tohoku earthquake and tsunami reminded the world that nuclear power is not risk-free, the liquefied natural gas (LNG) market was booming in Japan. In fact, the LNG market has been booming throughout Asia for the last several years. That’s good news for Australia…and for a variety of companies that serve the LNG industry.

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Currently, Japan is the largest buyer of LNG. Japan and South Korea together make up 53% of current global regasification capacity. (That is, the ability to import LNG and turn it back into a gas for consumer and industrial use.)

Pressed against this new demand is an aging supply base in places. For instance, there are old LNG fields in Malaysia and Indonesia coming to the end of their useful lives.

So how will the market meet this surge in Asian demand? That’s where LNG from nearby Australia comes in. It’s hard to miss this story when you take a look at the Australian resource markets. It’s in the papers nearly every day. And the amount of money flowing into these markets is just staggering.

The Gorgon Project alone – a joint venture between Exxon Mobil, Chevron and Shell in Australia – will cost some $50 billion to develop. It already has supply contracts from India and China worth $60 billion and will surely get more contracts before the gas starts flowing in 2014. There are other firms pushing ahead with aggressive LNG ambitions. Woodside Petroleum, an Aussie oil and gas company, wants to be the leader in LNG by 2020.

As a result of all this activity, Australia will challenge Qatar as the world’s largest LNG exporter. “The numbers are phenomenal,” an Aussie analyst remarked about his country’s LNG growth curve. “When you look at them, it’s mind-boggling. It’s going to be LNG boom times.”

Asian buyers love Australia LNG because it’s close…and secure. The gas doesn’t have to pass through the war zones of the Middle East or the pirate-infested waters off Somalia. For most buyers, Australian gas doesn’t even have to pass through the congested Straits of Malacca, either.

Australia has lots of offshore natural gas. Explorers continue to find sizable new discoveries, which means new projects will come on board over the next few years. Most of these are in Western Australia’s waters. But Queensland also has sizeable nat gas deposits, as well as big reserves of coal seam gas. This is naturally occurring methane trapped by water deep underground. Coal seam gas also can be converted to LNG.