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Despite massive reserves, Australia may need to import natural gas

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Despite massive reserves, Australia may need to import natural gas

Three years ago, AGL Energy warned of the dramatic imbalance between Australia’s LNG export commitments and inadequate domestic supply. Today, AGL is assessing the merits of building a gas import facility. That’s right. Australia, with some of the world’s largest natural gas reserves, may soon need to import gas for domestic consumption. How has it come to this?

We have covered this significant market inefficiency extensively (see here, here and here). In a nutshell, at the height of the GFC, Australia approved the construction of three major LNG terminals on the east coast and committed to service long-term offshore contracts. These terminals are now operational, yet the export commitments are depleting our domestic access to gas.

Meanwhile, there is a glut of natural gas internationally as Asian, American and Middle Eastern nations have increased production alongside Australia. This means cheap gas offshore but expensive gas onshore.

Australia’s energy system is ill-equipped to deal with this domestic gas shortage and it will take years to remedy the inadequate infrastructure connecting the states.

AGL Energy, one of Australia’s largest generators and retailers of gas, may now be forced to spend $300 million on a gas import facility.

The perfect storm has arrived and we are starting to feel its effects. Unfortunately, we ain’t seen nothing yet.

Ben joined Montgomery Investment Management in 2012. Prior to joining Montgomery Ben was an Analyst at the Reserve Bank of Australia. Ben is a CFA® charterholder.

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This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564) and may contain general financial advice that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking advice from a financial advisor if necessary.

3 Comments

  1. You have to be joking aren’t you??
    Not only are we letting them sell it O/S we are not even taxing them enough for the national interest. Also don’t they (exporters) have to supply a minimum amount for domestic use?? I think if you looked into what is happening with these facilities is that one is minimising the out put of their domestic plant, one doesn’t even have one and the other 3 wouldn’t either as they are to focused on construction and exporting.
    Another great example of governments living in the now and not thinking of the future!!

  2. It would seem to me the proposal by AGL to which you refer is a bit of a call to the regulators to get off their behinds and get the pipeline operators and owners to play fair more than a real proposal to have gas simultaneously being liquified and gasified at huge cost on the waterfront given the glut of gas out there.

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