Millions of Tons of Aussie LNG Headed to Japan

Australia’s booming resource sector continues to power ahead, with news that several massive LNG fields will be developed, including a gas field known as Gorgon which will begin construction within weeks. Australia exports much of its resources to Asia, with Japan accounting for 20% of the country’s A$200 billion or so in annual exports, still Australia’s number one export partner.

In the past, coal, iron ore and foods have been major export commodities for Australia, but development of LNG resources continues to grow, with more than $150 billion dollars worth of projects in various stages of development. The Gorgon project alone is expected to bring in about $300 billion in export dollars over its 40 year life. Considering the total value of exports from Australia for 2006-7 was $200 billion, and the entire Australian GDP is less than $1 trillion, this is a huge project for Australia.

Japanese companies Tokyo Gas and Osaka Gas have invested in the Gorgon project, and expect to purchase about 2.5 million tons of LNG from Gorgon per year for 25 years, starting in 2014. This sounds like a lot (and is), but with nuclear power production down in recent years, Japan burns through about 6-8 million tons of LNG each month (see here). So there is still plenty of scope for other projects to gain a foothold in this market, as well as in the growing Chinese market.

The Gorgon site alone aims to extract about 1.2 trillion cubic meters of gas from the site 130 km off the coast of Western Australia. This will then be transported to nearby Barrow Island where it will be cooled to minus 161C and then shipped in giant ocean tankers. With global demand for LNG expected to increase 2-3 times over the next 25 years, Australia are well placed to capitolize, with massive fields yet untapped. Thus the desire of Japan and others to get involved in the investment. While still growing, LNG will soon surpass coal as Australia’s number one export commodity, and at its peak the Gorgon project expects to supply up to 8% of the global demand for LNG.

With Japan looking to reduce CO2 emissions, LNG use is set for a major boost. While its CO2 emissions do not compare with the likes of nuclear or hydroelectric power sources (0.022 and 0.02 kg per kilowatt-hour), it releases about two thirds that of coal, making it a much cleaner alternative (coal: 0.99 kg per kilowatt-hour; LNG: 0.65 kg per kilowatt-hour). As the Hatoyama administration looks to reduce CO2 emissions in a big way, Australia is set to benefit greatly with increased sales of LNG.

Source: Natural Gas Down Under Bound for Japan by 2014