27/05/2014 - 12:53

Russia-China gas deal threatens Australia: EnergyQuest

27/05/2014 - 12:53

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The enormous gas supply deal Russia recently struck with China reduces Australia’s advantage as a major liquefied natural gas exporter, according to Australian advisory firm EnergyQuest.

Russia-China gas deal threatens Australia: EnergyQuest

The enormous gas supply deal Russia recently struck with China reduces Australia’s advantage as a major liquefied natural gas exporter, according to Australian advisory firm EnergyQuest.

Russia recently agreed to a deal to supply 38 billion cubic metres of gas from Gazprom’s East Siberian fields into China via a pipeline, after almost two decades of negotiation.

With Russia having the world's largest gas reserves, the planned pipeline could enable it to supply gas to proposed LNG plants, including the Vladivostok project.

EnergyQuest principal Graeme Bethune said the deal laid the basis for Russia’s participation in Pacific coast LNG projects.

“The negative impact for Australia’s LNG competitiveness and future market share from this new market dynamic is serious,” he said.

Mr Bethune quoted estimated operating costs for an Australian greenfiled LNG plants at around $US3,500 per tonne of capacity per annum, compared with Gazprom’s Russian operation, which will run at around $US2,000/t of capacity per annum.

“Australia’s LNG sector should be mightily concerned as the project cost for Russia in its China supply deal is about the same cost as our own Gorgon project - but with a capability to supply 80% more gas,’’ he said.

“This deal has the very real potential therefore to be a game changer in Australia’s key LNG market.”

Mr Bethune said floating LNG was not a “get-out-of-jail card” and Australia needed to reduce costs to remain globally competitive.

“In these circumstances, arguing against floating LNG developments in Australia, the cheapeast LNG alternative, is irrelevant. It has to be cheapest development or nothing,” he said.

“Australia has to urgently cut costs and improve its LNG project execution, that is learn to walk and chew gum at the same time.”

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