Australian LNG output cuts seen long term amid gas shortage

JAMES PATON

SYDNEY (Bloomberg) -- A shortage of coal-seam gas, needed to feed about $60 billion of export projects in eastern Australia, may prompt the developers to reduce shipments in the long term, according to Credit Suisse Group.

The LNG developments in Queensland state face a potential shortfall of 4,500 to 9,000 petajoules over two decades, or as much as 30% of the supplies needed, said Sydney-based analysts Mark Samter and Martin Kronborg.

While a deal to bring Arrow Energy’s gas into the plants developed by companies including Santos and BG Group would fix the problem, getting it to the projects would be expensive, the analysts said. An oil price of at least $75/bbl would be needed to make that viable, they said. Arrow is owned by Royal Dutch Shell and PetroChina.

Santos is building the Gladstone LNG project that’s scheduled to begin later this year, while BG is operator of the Queensland Curtis LNG development, which started up late last year. Origin Energy is developing a third plant on Curtis Island with ConocoPhillips that’s due to begin in 2015.

If Arrow gas doesn't make it to the plants on Curtis Island and new domestic gas projects aren’t approved, “the next logical step is less offtake from either GLNG or QCLNG,” Samter said. “Something ultimately has to break.”

The possibility of lower output from the projects would probably be “many years away,” according to Samter.

Santos “is open to collaboration, but we are unable to comment on discussions with third parties,” said the Adelaide-based company. BG’s Australian unit in Brisbane didn't immediately respond.

Origin’s project has the largest coal-seam gas reserves in Australia, which are sufficient to support the export plant, the Sydney-based company reiterated.

“There are significant gas reserves in Australia that enable us to meet the needs of both domestic and export markets,” it said.