Australian LNG import momentum growing but New Zealand?

The momentum for LNG imports in south-eastern Australia is accelerating amidst closures of coal-fired power stations and warnings of a possible gas shortage in Victoria as soon as 2023. The most advanced project is Andrew Forrest’s Port Kembla Gas Terminal, which has environmental approvals in place, the site leased and major works due to start next month. Gas pipeline operator Jemena is pushing ahead with plans to link the terminal to the Eastern Gas Pipeline, providing access to Victoria. In Victoria itself there are now three proposed projects, with the latest being a proposal by Vopak to dock an FSRU in Port Phillip Bay. The other two projects are Viva Energy’s proposal to build an import terminal at its refinery in Corio Bay and AGL’s Crib Point project, currently subject to environmental assessment, with a decision due by 30 March. These projects will not all go ahead but there is room in the market for two projects, possibly one each in Victoria and NSW. Two projects could mean LNG demand of up to 4 million tonnes per annum, a significant volume.

Why would the world’s largest LNG producer be looking at import terminals? There is a need for new and more distant gas supplies in New South Wales and Victoria arising from the decline of legacy gas fields offshore Victoria and restrictions on new gas developments in both states. With its 10 producing LNG projects, in-country LNG imports are now a real option, as also happens in Indonesia.

Australia is a large country, with nearly the same land area as the US Lower 48 but with only 26 million people and small, scattered domestic gas markets. It is currently a land of long, skinny gas pipelines. For very long distances, such as shipping gas over 3,000 km from the North West Shelf in Western Australia to the Victorian capital Melbourne, LNG shipping is more competitive than pipelines. The expansion of LNG projects makes this a possibility. Imports does not necessarily mean from overseas, although an import terminal also provides sourcing flexibility.  

Meanwhile in New Zealand, the gas industry co-regulator the Gas Industry Company is conducting an investigation into the security and certainty of gas supply at the request of the New Zealand Energy Minister. This includes investigating the scope for LNG imports. The overall context is the country’s 2018 decision not to award any new offshore exploration permits, the relinquishment of all existing frontier permits, the proposed ban on new natural gas and LPG connections from 2025, the aim of achieving 100% renewable electricity by 2030 and natural gas in buildings phased out by 2050, consistent with the country’s aim of achieving net zero emissions.

Gas is important in New Zealand. Hydro and geothermal are the largest power generators but gas still generates 14% of electricity. Gas comprises 19% of primary energy consumption and is important for the food and the chemical industries. However, New Zealand is also a small gas market at 5 billion cubic metres a year, too small for LNG imports. LNG imports would need infrastructure investment (probably leading to protests) and with declining demand any private sector investment would be risky. Also, imported LNG at international prices would be more expensive than indigenous NZ gas and produce more greenhouse gas emissions, from LNG production, shipping and regasification. So, importing LNG appears a very long-shot. LNG producers are already actively considering entering the south eastern Australian market but New Zealand is likely to be a bridge too far. 

Graeme Bethune contact: +61419828617