QATARGAS, the world’s largest LNG producer, sent tremors through the analyst community last month when it announced its first long-term contract to supply gas to the Southeast Asian market. Qatargas and Petronas of Malaysia announced a contract for the delivery of 1.5 million tonnes per annum of LNG to Malaysia’s domestic market for a period of at least 20 years, starting in 2013.
Malaysia’s domestic market is a foundation customer for the Santos-operated Gladstone LNG project, which is supplying 3.5MMtpa from 2014.
Could Qatargas be muscling into the backyard of Australia’s east coast LNG projects?
Graeme Bethune, chief executive of energy advisory firm, EnergyQuest, says the sale is no cause for alarm.
“It’s really a story about opportunities in the new and expanding regional market of Southeast Asia, rather than fierce competition.”
He said Southeast Asia, which had traditionally been an exporter of gas, was now an importer thanks to a number of factors.
“It’s a quite a turnaround. Malaysia, which of course is home to Petronas, is almost synonymous with LNG exporting.
“But the region can no longer supply its own needs and has great potential as an expanding new market for Australian LNG projects.”
Bethune, who is part of an International Gas Union study group that is compiling a report on gas markets in Asia, said a number of factors were behind the rapid switch in the supply/demand in South East Asia.
“Most of the big gas fields in the region are mature, and exploration has been suppressed by regulated gas prices.
“These constraints on domestic supply have begun to bite when demand is rising strongly.
“The outlook for demand is for continued strong growth as standards of living rise in countries such as Malaysia and Thailand.”
Wood Mackenzie head of Australasia upstream research Craig McMahon agreed that Australian projects need not be that concerned by the Qatargas contract with Malaysia, noting that it called for deliveries before any of the new Australian projects shipped their first cargoes.
Malaysia’s need for LNG imports reflects some unusual geography and market forces.
It is the world’s second largest exporter of gas after Qatar, but the country has been caught without sufficient reserves for its own needs in a situation that echoes the domestic market in Western Australia.
Malaysia’s three LNG plants are located at Bintulu in Borneo. Gas feedstock is provided by a cluster of fields about 200 kilometres offshore in the South China Sea and is entirely committed under LNG contracts with customers Japan, Korea and Taiwan.
Even if Malaysia could spare gas from some of these fields for the domestic market there is no pipeline connection with the Malaysian Peninsula, where almost three quarters of the country’s 28 million people reside. Smaller gas fields offshore from the Malaysian Peninsula are rapidly depleting.
To fill the growing shortfall in domestic supply, Petronas is constructing a floating LNG import terminal, with capacity of 3.8MMtpa, off the cost from Malacca, south of Kuala Lumpur. Imports are expected to begin in 2012, two years before Gladstone LNG will be able to ship its first cargoes.
Petronas recently announced plans for second import terminal as part of a new petrochemical complex at Pengerang in southern Johor.
Qatargas said last month domestic gas demand in Malaysia was growing at a rate of 6% per year. It said the 1.5MMtpa of LNG supplied under the new deal with Petronas was equivalent to around 5% of Malaysia’s current annual average demand.
Indonesia and Singapore are other Southeast Asian markets that are opening up for Australian LNG projects.
Indonesia is the world’s third largest exporter of LNG, but like Malaysia faces a rising shortfall of domestic supplies. Government officials were recently reported as stating the country could import up to 4.5MMtpa as early as 2013. Three floating import terminals are under construction, in Java’s north western province of Banten, in North Sumatra and in East Java.
Singapore’s first LNG re-gasification terminal is due to open in 2013. The initial import capacity of 3.5MMtpa will be expanded to 6.0MMtpa in 2014. This will exceed the island nation’s domestic needs and is expected to become the basis of a regional LNG trading hub.
BG-owned QCLNG was an early mover into the Singapore market, winning a contract in 2010 to supply 1.5MMtpa for 20 years. BG was appointed by Singapore’s Energy Market Authority in 2008 to aggregate the supply of 3 MMtpa of LNG for the next 20 years.
LNG projects in Australia will have the capacity to capitalise on these opportunities.
By contrast, Qatar has already contracted its entire export capacity of about 77 MMtpa, according to recent research by energy consultancy Wood Mackenzie. Export capacity made surplus to US customer requirements by the shale gas revolution has been taken by Japan in the wake of the Fukashima disaster and by China.
The Asia Pacific region is conspicuously short of new LNG projects outside Australia and Papua New Guinea, which is another reason for local operators to be optimistic about seizing new opportunities in South East Asia. All they need do now is find the skills and materials to build all the projects on the drawing board.
Thursday, 4 August 2011
energynewspremium.net
