Potential restrictions on Australian LNG exports are another blow to Asia-Pacific gas markets

The Asia-Pacific gas market suffered another shock after major natural gas producer Australia signaled it might cut liquefied natural gas exports as the region faced with tight gas supplies, high prices and competition from gas-short European buyers.

Australia is looking to cut overseas sales to benefit domestic consumption ahead of a domestic supply shortfall expected next year.

As energy protectionism takes hold globally, last week the Australian Competition and Consumer Commission called on Canberra to protect domestic gas supplies and limit exports of LNG-cooled natural gas. after forecasting the country’s east coast could face a shortage of 56 petajoules of gas next year.

For months, the Asia-Pacific region has faced competition for fuel from European customers looking to replace restricted Russian gas.

These European countries, are vying for LNG to alleviate gas shortages before the boreal winter, has outbid some less developed Asian countries, leaving them starving for fuel.

“To protect energy security on the east coast, we recommend that the Minister of Natural Resources initiate the first step of the Australian Inland Gas Security Mechanism (ADGSM),” said ACCC Chair Gina Cass-Gottlieb. know last week.

“We also strongly encourage LNG exporters to immediately increase their supply in [local] market.”

A pier carrying liquefied natural gas in Japan, on December 17, 2021. If Japan ever gets rid of the Sakhalin energy projects in Russia and their stake has been taken by Russia or a third country three acquisitions, which would weaken the effectiveness of Western sanctions and benefit Russia, Japan’s industry minister said on Friday.

Kiyoshi Ota | Bloomberg | beautiful pictures

Most of the gas used on Australia’s east coast is produced by companies that are also LNG exporters to Asia-Pacific and other countries. ADGSM prevents these producers from exporting LNG if there is a domestic shortage.

While most LNG sales to overseas buyers are done through long-term contracts, Australian LNG producers also sell specialty and non-contractual LNG in the spot market. Countries that are unable to obtain competitive long-term contracts are forced to buy them on the spot market.

It is this supply of LNG that the ACCC says producers should avoid selling to foreign markets – now inundated with gas-hungry buyers – and leave it to domestic consumers.

However, the gas lobbying group, the Australian Petroleum Production & Exploration Association, reassured the market, saying that despite the ACCC’s warning, there is more than enough gas to come next year and never before. actual shortage now.

“Clearly throughout the existence of the export industry, excess gas enters the domestic market. So we were able to achieve both. We don’t think it’s the other one, “acting CEO Damian Dwyer told CNBC’s “Squawk Box Asia” on Tuesday.

“There has been significant investment in the export industry. And that investment has resulted in significant domestic supply. One complements the other.”

But if the mechanism is successfully applied, analysts say new supply and price pressures will be hit by the region’s biggest LNG buyers such as Japan and South Korea, as well as new entrants. LNG imports such as the Philippines, analysts said.

LNG prices have risen nearly 80% since before the Ukraine war began in late February, according to Platts JKM valuation index.

“Since April, there is no [spot] Kenneth Foo, regional director of LNG pricing at S&P Global Market Intelligence APAC LNG.

“The lack of immediate supply from the East Coast of Australia could further tighten LNG supplies in the Asia-Pacific region, especially during the peak winter demand season in the fourth quarter,” Foo said. ,” said Foo.

The Philippines is entering the global LNG market at a time of extreme uncertainty. Global LNG supplies are constrained in part by Russia’s invasion of Ukraine, and LNG prices continue to hit record highs.

Sam Reynolds

Institute of Energy Economics and Financial Analysis

Developing Asian countries such as Bangladesh and Pakistan have had to bow out from buying LNG in the spot market, said Sam Reynolds, an analyst at the Institute of Energy Economics and Financial Analysis.

“The inability to procure volumes of LNG in these countries has caused fuel shortages and power outages, pushing the countries to the brink of economic collapse,” he said.

The Philippines, which is a new entrant to the LNG import market, will face difficult conditions when trying to import its first LNG shipment, he added.

“The inability to buy LNG at competitive prices could leave new terminals and LNG-powered power plants unused and aground,” he said.

Reynolds said such failures could derail efforts to boost the Philippines’ LNG sector, which has suffered years of setbacks, Reynolds said.

Although countries without long-term contracts like the Philippines may suffer, the region’s LNG supply is generally secure.

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The cuts proposed by Australia amount to about 14 LNG shipments. This is a decrease in the amount of contract cargo shipped each month. In July, Australia exported 100 shipments out of more than 300 shipped into Asia, Reynolds said.

“The cuts will only limit LNG exports that are not sold under long-term contracts. This means the cuts will have minimal impact on buyers such as Japan, South Korea and China, countries that buy 70% to 80% of their LNG through the long term, Reynolds said.

The LNG markets have a bigger problem than Australia’s curbs. Reynolds said that Europe’s push for Asia-Pacific LNG supplies remains the biggest threat.

As a result, the rise in energy prices globally has contributed to the rising inflation that many central banks are racing to contain.

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