[Graeme]

Australian $90 billion gas megadeal with Japan

AUSTRALIA has cemented its biggest trade deal with a $90 billion agreement to export liquefied natural gas to Japan.

The contract, signed on the eve of the international climate change conference in Copenhagen, comes as big Asian countries scramble to lock up long-term supplies of the low-emissions fuel.

US oil giant Chevron announced on the weekend it would deliver 4.1 million tonnes of LNG from its Wheatstone project off the coast of Western Australia to Japan's largest utility, Tokyo Electric Power Co, each year for up to 20 years.

heraldsun

[Tanada]

Graeme what do you think this means for Australia? The way I see it they might be very smart in making this deal because of all those shale gas plays in Europe and North America pan out the international price is bound to fall, and they have a fixed price contract that will benefit them compared to their competitor's.

[Graeme]

Obviously this is an important contract for Australia. I can only speculate what the implications are because I cannot possibly review this industry in a few minutes. The Australian market could be viewed as a secure one. Regarding future prices again this is hard to predict. One scenario is that prices could increase especially if demand for natural gas increases with the maturity of this industry.

[Graeme]

Now that I've finished travelling, I'll try to add a little more to my answer. Firstly, I will refer you to an earlier thread I posted about Australian natural gas reserves. You can see that Australian gas production should last until about 2030.

Regarding the price, I found quite by chance this article, which sheds more light on the matter.

The Quiet Energy Revolution

Natural gas and natural gas markets, however, are different. Ethereal and highly flammable, natural gas poses significant transportation problems. A tanker ship can’t simply fill up and shove off. For this reason, there has been no single global market for gas, but a number of balkanized, regional markets all over the planet. The price of natural gas in one region has little connection to the price in another, and for many years regions facing shortages could not be relieved by gas from regions with excess capacity.

That is changing, not as rapidly as the shale gale has transformed America’s gas picture, but still rapidly compared with other business transformations. The reason is liquefied natural gas (LNG). Innovations in liquefaction and re-gasification technologies allow gas to be condensed to 1/600th its size, which then can be shipped by sea. Major infrastructure investments by energy companies and governments, along with the development of specially designed double-hulled tankers to transport LNG, are creating a robust, integrated market for natural gas.

The implications are profound and largely positive. The new mobility of LNG will bring a sorely needed measure of market stability after the past five years of unpredictability in price and supply.

LNG, along with the shale gale, should help keep natural gas prices low for a long time.

Does this answer your question?

[Tanada]

Well it gives more background, which is always welcome.

I wonder how expensive it would be to link Australia/Indonesia/Malaysia/Thailand/PRC/Korea/Japan into a new Austro-Asian pipeline network? You could do it in small segments adding links between systems where they exist already, but some places have used little gas in the past. It is a great industrial fuel because it is easy and clean and puts less wear and tear on your equipment if you can get it.

[Graeme]

Funny you should mention that. An electricity and natural-gas pipeline grid connecting much of SE Asia has already been suggested. It will be interesting to see if it actually gets constructed!

[SeaGypsy]

Australia is in an extremely complex and difficult relationship with Asia. By far the richest per capita earner in the region. Australia draws it's undersea boundary along a plate line 90% of the distance to Timor and Indonesia, then claims territorial control over fishing and undersea mining rights; despite the fact Australia was non existent as a country for hundreds of years after both Timor and Indonesia were civilised.
Average wages in Australia are litterally hundreds of times average wages in Indonesia or Timor. Yet we regularly arrest their fishermen and burn their boats on our beaches then send them home with a fine. Then we wonder why we are not popular there.
We try to appease them with relief for disasters and training for their military and police. But everyone knows we are in it for our own security and benefit.
Australia will never become a full member of ASEAN because we will not allow truly free trade with other ASEAN nations. The negotiations to set up a pipeline from Australia across Asia will happen on Australia's terms or not at all. At the moment the focus in the north of Australia is 100% towards CNG for export and intranatational supply. It can be gauranteed that any pipeline from the north of Australia would become a prime terrorist target for cranky Muslims in Indonesia and Malaysia.
Not going to happen.

[Tanada]

I would think Indonesia with its rapidly declining petroleum and natural gas resources would benefit greatly from a secure supply so close at hand and so easily interconnected. Perhaps I am mistaken.

[SeaGypsy]

Indonesia could use the resources alright; that's not the issue. Indonesia is very regionalised, many different islands and cultures exist under the banner. The country was 1st drawn together under Dutch administrators and sice independence has been run by an elite cabale from Jakarta. Corruption is absolutely rampant. prime example: Tommy Soharto, son of the former dictator president was convicted of murdering a judge who sentenced him to jail for corruption during his fathers rule. he served 2 years of an 8 year sentence (8 YEARS FOR MURDERING A JUDGE!!!) He is currently running for president!!! The place is in a hell of a mess.
To run a gas line through the many unstable political and geological regions of Indonesia would be a logistical and security nightmare. Plus it would give Jakarta a veto on downline supply, if it were to continue into Malaysia/ Singapore/ Thailand etc. relationships which can be a bit rough at times also.
One thing Australia is good at is learning from the mistakes of others. The gaslines in eastern Europe, the Balkans and beyond, case in point.
Much better idea to waste a predictable 20% on compression and freight it to the highest bidder; as in this case Japan.

[Graeme]

There's some interesting information about natural gas prices as an aside in this article:

Gas CTCC is cheapest

The cheapest capital cost by 2015 will be to install a combustion turbine combined cycle running on natural gas, which will cost US$880/kWh and generate electricity for US$74-89/MWh. By 2025, the capital cost increases to US$902/kWh but the levelised cost of generation drops to US$67-81/MWh.

'Key uncertainties'

"Several key uncertainties impact near-term and long-term project decisions and research priorities" including renewable energy technology development, stringency of future CO2 emissions reduction programmes, the future price of natural gas (high sensitivity and variability), CO2 capture and storage technology development and costs, siting requirements, technology-driven escalations and reductions in plant costs, and dedicated biomass feedstock costs could raise the feedstock price and levelised cost of electricity substantially.