Australia LNG Growth to Continue on Asia Demand, Bernstein Says

Asia’s developing economies will use more liquefied natural gas than they produce by 2020, encouraging Australia to bring new production projects on stream, according to Bernstein Research.

Asian countries outside the Organization for Economic Cooperation and Development will have a gas deficit of 30 billion cubic feet a day by 2020, according to Bernstein. That’s equivalent to about 10 LNG cargoes a day.

“While Australian LNG growth may be slower in the future, it is certainly not the end of growth,” Neil Beveridge, a Hong Kong-based analyst at the company, said in a report e-mailed today. “Australia will continue to play a key role in meeting this demand.”

As demand grows in China, India, Southeast Asia, Japan and Korea, exports from Indonesia and Malaysia will decline to the point the countries become net importers of the fuel, the report said. That will support demand for Australia’s new LNG projects under construction including Chevron Corp.’s Gorgon and Wheatstone developments.

Australia’s LNG developments have been hampered by labor shortages and escalating infrastructure expenditure. Delays and spending over-runs are “endemic,” according to Bernstein, which estimates that projects in the country run from 15 percent to 50 percent over their original cost estimates. Australia’s three operational LNG liquefaction plants are Woodside Petroleum’s North West Shelf and Pluto LNG, and the Darwin project operated by ConocoPhillips.

Project Costs

The cost of Chevron’s Gorgon natural gas development, the largest resources project in Australia’s history, jumped 21 percent to A$52 billion ($53.7 billion) on local currency gains and higher labor expenses, the company said Dec. 6. Gorgon, whose workforce has grown to about 6,000 people, also has faced weather delays and “logistics challenges” that have contributed to the increased bill, the company said.

BG Group Plc, operator of one of three facilities under construction in the state of Queensland, said in May that the cost of the Curtis Island development rose 36 percent to $20.4 billion because of increases in the local currency, rising labor and material costs and higher regulatory expenses.

The cost of Exxon’s LNG development in Papua New Guinea surged 21 percent to $19 billion, partly because of a stronger Australian dollar, the company said in November. Royal Dutch Shell Plc, the world’s biggest LNG supplier, may delay until 2014 a decision on its Arrow LNG venture that’s forecast to cost $20 billion amid rising expenses for energy projects in Australia, Chief Executive Officer Peter Voser said in Beijing in November.

To contact the reporter on this story: Chou Hui Hong in Singapore at chong43@bloomberg.net

To contact the editor responsible for this story: Alexander Kwiatkowski at akwiatkowsk2@bloomberg.net

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