Australia warned on China's shale gas boom

Jul 15, 2011 12:00 AM

Australia's LNG industry has been put on notice that China's fast-growing shale gas industry could threaten the Asian country's appetite for gas from more than $ 200 bn of local projects. Pedro Haas, a senior expert with consultants McKinsey and Company, told the Australian Petroleum Production & Exploration Association conference in Perth that if shale gas production in China takes off as it has in the US, domestic production could provide as much as a quarter of the country's total gas demand within 4 years.

Such a seismic shift could be significant for Australia because, although Japan and South Korea are the traditional buyers of Australia's LNG, China and India have more recently emerged as growth markets. “US (shale gas production) has gone from 20 bn cum to 100 bn cum in the past 5 years,” said Mr Haas. “If you expect a similar growth pattern replicated in China, China would be producing 50 bn cum by 2015 and almost 100 bn by 2025.”

Total Chinese gas demand was forecast to hit 200 bn cm by 2015 and 284 bn by 2020. However, Mr Haas said it was too early to tell if this potential surge in shale gas production would be more of a challenge to coal production or LNG imports. “The key question is what will these uncertainties do to the pricing relationship,” Mr Haas said. “And of course whether gas in China competes with coal or competes with imported LNG will have an impact on the pricing of that gas.”

So named because it is found in shale rock, shale gas has only recently become economic because of technological advances. In the US, it has proved to be a game changer and now accounts for about 15 % of gas production, tipped to rise to 45 % by 2035. China is estimated to have twice the shale gas reserves of the US.

Woodside Petroleum chief executive Don Voelte struck a more bullish note on the prospects for Chinese demand, although he said the likes of Japan, South Korea and Taiwan would remain the core markets for LNG. “When you consider that Japan has been importing LNG for decades, it seems remarkable that China only received its 1st shipment in 2006,” he said. “With more regasification terminals scheduled to start up this year (2011), demand is set to grow by about 17 % a year to 24 mm tons in 2016.”

With growing economies like Thailand, Singapore and Vietnam in mind, Mr Voelte said new LNG supply of about 60 mm tons per annum would be needed to meet growing Asian demand from 2020. The key is what this will do to pricing.

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