How The World’s Top LNG Exporter Could Lose Its Crown

Australia became the world’s leading exporter of LNG last year. Now, there are claims coming from the industry itself that Australia could lose its LNG superpower status or far worse. It’s a curious claim after shipping an astounding 82 million tonnes of LNG valued at $63 billion last year. That was a world record (the U.S. exported just over 79 million tonnes and Qatar exported just over 81 million tonnes). 

When the claim comes directly from the operator of Australia’s Darwin-based Ichthys LNG project and one of Australian LNG’s biggest investors, it’s worth paying attention. The Ichthys LNG project is operated by Japan’s INPEX, and its CEO, Takayuki Ueda has recently warned that increasing government regulation, including the possibility of gas intended for LNG projects being diverted into the domestic market, is threatening the country’s newfound LNG superpower status. Lately, the Australian government has been intervening more aggressively in local gas markets. (Last year, following the east coast energy crisis, the federal government toughened the Australian Domestic Gas Security Mechanism (ADGSM), which gives it more power to limit LNG exports.)

Although the federal government has rushed to reassure customers that it remains a willing and reliable supplier of the super-chilled gas, a deeper dive into the state of Australia’s gas sector reveals that Ueda’s concerns are not as wild or far-fetched as they first sound. (And notably, Beijing agrees with Ueda, with the Chinese embassy in Canberra echoing his concerns.) 

Australia has 10 operating LNG projects with a total capacity of 88.6 million tonnes per annum (Mtpa). The Pluto Train 2 project currently under construction will bring total capacity to 93.6 Mtpa (126 Bcm) when it starts operations in 2026. Australian LNG has also been highly reliable, achieving 93% of nameplate capacity in 2022.

So, what could possibly go wrong?

First off, Australian gas reserves, including LNG and domestic gas fields, are not being replaced despite important legacy gas fields reaching the end of their lives. This is likely to be met by

shortfalls in the domestic market, which in turn could lead to gas meant for chilling and export being diverted to the domestic market. Since March 2018. Australia’s Proved and Probable gas reserves fell 11%, from 114,481 PJ (3,057 bcm) to 101,869 PJ (2,721 bcm). And markets have actually heard about this before: Back in 2021, ExxonMobil Corp. (NYSE:XOM), operator of the Gippsland Basin offshore Victoria, warned that producing wells would decline from 68 in 2022 to 36 by next winter. Last year, the Gippsland Basin supplied more than 70% of south-east Australia’s domestic gas demand.

Second … climate change laws. The Australian government has been getting stricter with its climate laws and has adopted more ambitious emissions reduction targets. One of the new laws holds that future gas projects must be net-zero from day one. That’s a tough one considering that LNG projects are pretty significant emitters because many Australian gas fields are known to contain significant volumes of CO2. 

Third, increased domestic demand due to closure of coal-fired generation means that more gas will have to be diverted from east coast LNG projects, which themselves have their own gas supply challenges.