--Clyde Russell is a Reuters market analyst. The views
expressed are his own.--
By Clyde Russell
LAUNCESTON, Australia, Feb 10 The decision by an
Australian power company to mothball a natural-gas plant and
restart two coal-fired units seems wrong on many levels, but
strangely, it has implications for U.S. liquefied gas exports.
Stanwell Power Corp, an electricity producer owned by
Queensland state, said last week it would shut for three years
its 385-megawatt (MW) Swanbank E power station, west of the
state capital Brisbane, while restarting two coal units with a
combined 350-MW capacity at its Tarong plant.
The decision was framed in terms of economics, with the
company saying it made more sense to sell the gas to other users
than to use it to generate power, and that returning to coal
would improve its competitiveness.
This switch back to coal power in Queensland brings together
several issues that show the difficulty of implementing policies
designed to combat climate change, while keeping industry
competitive and encouraging lucrative energy exports in the form
of liquefied natural gas (LNG).
Australia and the United States took different paths with
their natural gas bonanzas, and both have reaped benefits, but
not without complications.
Australia used large discoveries of conventional and
coal-seam gas to embark on projects costing more than $200
billion that will make it the world's biggest exporter of LNG by
The boom in construction helped fuel economic growth and
allowed Australia to sail through the 2008 global recession
relatively unscathed. But the LNG push has also had some nasty
side effects for Australia.
Domestic gas prices are roughly double those in the United
States, leading to complaints from industrial users such as
chemical producers about a lack of competitiveness.
Manufacturing in Australia has been stymied not only by high
natural gas costs, but also by rising power bills and a stronger
And while not all of the blame can be laid at the door of
the LNG projects, some can.
The three LNG projects under construction in Queensland are
based on coal-seam gas as a feedstock.
However, there have been issues in securing sufficient
reserves and there is mounting opposition to producing the gas,
which requires multiple wells and small pipelines across large
areas, much of which is prime agricultural land.
This has led to an unlikely coalition of farmers and
environmentalists, making it harder for energy companies to
explore for new resources.
Just how green groups will feel about Stanwell's decision to
shut a gas-fired plant and re-open coal units remains to be
seen, but it's hard to escape the conclusion that their protests
against coal-seam gas have not only raised prices, but also
doubts about the future of Australia's ambitious LNG plans.
U.S. SHALE GAS
The United States travelled a different path with its shale
gas bonanza, using it for domestic consumption as it lacked the
infrastructure to export the fuel as LNG.
This saw benchmark U.S. natural gas prices drop by
about 88 percent from the peak in December 2005 to a low in
While prices have recovered since then to close on Feb. 7 at
$4.77 per million British thermal units, this is still about
half what users pay in Australia and less than a quarter of LNG
costs for major Asian consumers such as Japan and South Korea.
This cheap gas has helped give the United States back its
manufacturing mojo, with more than $90 billion of industrial
projects under construction and lower energy costs boosting
Now the United States is seeking to use some of its shale
gas to enter the LNG market, looking to Asian buyers who are
keen to lower costs.
While a study commissioned by the U.S. Department of Energy
found that exporting LNG would provide a net benefit to the
nation and not raise costs for domestic users, there are reasons
to be sceptical.
Similar arguments were advanced in Australia, namely that
coal-seam reserves were so abundant that there would be plenty
of gas for exporters and local users alike.
The reality has turned out to be somewhat different:
Domestic gas costs have doubled in Australia in the past five
years, while electricity costs rose by 28 percent in the three
years from 2010 to 2012.
While some of the gain was because of the former Labor Party
government's introduction of a carbon tax, more of the increase
was because of rising fuel costs, particularly natural gas.
While planned U.S. LNG exports of 60 million tonnes a year
still represent a relatively small amount of total U.S. natural
gas production, it means that there will be more competition for
supplies among users, with the possible consequence of higher
prices, assuming output doesn't grow at a faster pace.
This doesn't mean that the United States would be better off
economically if it disallowed LNG exports.
What it does mean is that similar to Australia there will be
winners and losers, not just mainly winners as could be
currently argued is the case for U.S. shale gas.
In Australia the winners so far have been engineering
construction firms and their employees building the LNG plants,
while energy companies owning the plants as well as the
government should become winners once exports commence.
Losers have been the industrial and residential gas and
electricity customers, and possibly the environment as a cleaner
fuel is now losing out to coal.
While Australia and the United States have different
dynamics around their natural gas industries, it may not be
unreasonable to assume some convergence of issues the closer
U.S. LNG shipments come to reality.