Published Jan 13 2004 by The Age
Archived Jan 13 2004

AUSTRALIA - Hopes of $50bn gas sale

by Josh Gordon

Australia is confident it can win liquified natural gas contracts with the United States worth up to $50 billion, amid warnings that America is facing a looming energy crisis.

Industry Minister Ian Macfarlane will meet US Energy Secretary Spencer Abraham tomorrow to discuss future gas deals that could dwarf the $25 billion contract signed with China last year.

"It's just such a huge energy market," Mr Macfarlane said. "I mean the Chinese contract, which is at the moment 3.3 million tonnes a year and likely to go up, is worth $25 billion. We'll see tonnages far in excess of that if we are successful."

Mr Macfarlane said contracts totalling $50 billion were feasible, possibly even larger.

American liquified natural gas imports are expected to increase ten-fold over the next six years and total US energy consumption is expected to surge by about 32 per cent over the next two decades.

The Bush Administration has admitted that America's capacity to meet its voracious hunger for energy through domestic production is limited.

Mr Macfarlane warned that the US could face an energy crisis that would rival the 1973 and 1980 oil price shocks. Both events triggered a combination of soaring inflation and economic stagnation in the major economies of the world.

"The US have only very recently become open about their energy requirements, and some say it's as big a crisis, or potential crisis, as during the oil shocks," he said.

Australia's contract with China last year followed an earlier 25-year contract with China to supply $30 billion worth of liquified natural gas, starting from 2008. To meet the expected rise in demand, a consortium of multinational energy companies is spending $11 billion to develop another gas field off the coast of Western Australia, said to contain about 365 billion cubic metres of gas.

Mr Abraham's visit follows intense concern about power shortages and blackouts on the east and west coasts of the US. Soaring oil prices during North American winters have already encouraged hundreds of thousands of Americans to switch to gas.

Russia and Indonesia are both major rivals that could potentially offer the US cheaper gas than Australia. But Mr Macfarlane said Australia's stable economy, strong ties with the US, and guaranteed supply would be major selling points, as they were with China.

"The thing that we have in terms of LNG that some other countries can't offer . . . is that we can supply gas long term. We are not just looking to spot for the market for five years, we are looking for 25 to 30-year contracts and we've got the capacity to get them."

Australia's best hope for big gas contracts is to supply the environmentally conscientious state of California, where a terminal to receive gas supply ships is expected to be operating by the end of the decade.

Mr Abraham will meet Australian gas and energy industry leaders in Melbourne on Friday, after meeting Mr Macfarlane tomorrow.

The Government had hoped to reach a free trade deal with the US by the end of last year, but this has been delayed.

Mr Macfarlane said he would also be discussing renewable energy and new technology to cut greenhouse emissions by storing carbon, the major greenhouse gas, in sinks.

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