The Real "Land of Plenty" - Why U.S. LNG Won't Face Australia's Natural Gas Supply Problem

The U.S. and Australia have been ramping up their LNG exports — Australia already is the world’s second-largest LNG exporter after Qatar and the U.S. will soon rank third. Two recent events highlight the difference between the two countries and their natural gas markets. First, in June the Australian prime minister acted to curtail LNG exports next year because of gas-supply shortages affecting domestic consumers. Second, on July 19, the Potential Gas Committee released its biennial analysis of recoverable gas resources in the U.S.; its findings support the view that U.S. LNG exports can continue growing without causing domestic supply constraints. Today we review the PGC report and the Australian LNG/supply situation, then compare the two markets.

There are real similarities — and noteworthy differences — between the U.S. and Australia. They’re similar in size (Australia’s land mass is slightly smaller than the Lower 48). Both were British colonies before establishing stable, long-lasting democratic governments. Both call their currency the dollar, and both are blessed with extraordinary scenery and natural resources. Big differences stand out, though. Australia’s population is only 24 million, an astounding 300 million fewer than the U.S. — heck, Texas alone has four million more people than The Land Down Under. And, as we will discuss today, there appears to be a big gap between the U.S. and Australia in the respective capacity of their natural gas sectors to accommodate a big ramp-up in LNG exports.

Let’s begin with Australia. The country’s prime minister, Malcolm Turnbull, on June 20 (2017) announced that new rules scheduled to take effect on January 1, 2018, would restrict LNG exports to what is left after domestic gas markets are satisfied. This requirement appears to be ongoing, rather than a one-time determination. According to the prime minister, the level of LNG demand pull by Asian markets had reached the point that natural gas prices in Australia’s eastern population centers were beginning to exceed the delivered price of LNG. Since June, the announced restriction has raised concerns among LNG importing countries that have been banking on Australian supply. It has also renewed warnings by critics of U.S. LNG exports, who have argued that the same thing could happen in the states.

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