Australia’s LNG exports are so successful they may soon need to import it

Australia is on the verge of becoming the biggest exporter of liquefied natural gas as dozens of tankers carry fuel to North Asia each week. However, as supply sources in its southern states run out the country may now need to import LNG as well. Importing LNG into a gas-rich country is not new; both Malaysia and Indonesia, the third and fifth-biggest LNG producers, have import terminals because transporting gas between islands by ship makes more sense than pipelines.

Five LNG import projects are vying to start up between 2021 and 2022, possibly forcing gas users in New South Wales, South Australia, Tasmania, and Victoria into more direct competition with Asian buyers for gas from northern Australia. Those states represent a yearly market of 420 petajoules (PJ), equivalent to 7.8 million tonnes of LNG worth about $3 billion. That represents 2 percent of global LNG trade, but import proponents say the terminals would be another key outlet for spot cargoes of the fuel, especially during periods of low demand in the northern hemisphere. Piping gas from Queensland in northern Australia to southern markets is expensive, making LNG imports potentially viable.

Eastern Australia has ample gas reserves to meet demand. Though the market outlook is tight, due to falling output from Exxon Mobil’s and BHP Group’s Gippsland Basin joint venture off Victoria, rising production costs and state restrictions on onshore drilling. Australian LNG producer Woodside Petroleum said gas for such pay-per-use terminals could come from Australia, the United States, Asia, wherever spot prices are cheapest.

Exxon Mobil is a big wild card, as it is considering imports to protect its turf in southeastern Australia, where it has been the dominant supplier for nearly 50 years. Its infrastructure and experience selling into the southeastern market put it in a unique position, said Exxon Mobil Australia Chairman Richard Owen. “We’ve got some competitive advantage and probably have a little bit more time than some of the other players,” Mr. Owen said at a business event on Friday.

Industrial users are reluctant to commit to imports amid uncertainty over local gas developments, notably Narrabri in New South Wales, for which Santos Ltd hopes to win state approval this year. Royal Dutch Shell’s and PetroChina’s Arrow Energy Surat project in Queensland, Australia’s biggest undeveloped coal seam gas resource, aims to start producing by 2021, but has been delayed due to a spat between the partners.