In its usual slow witted way, the Australian Securities Exchange (ASX) is gradually waking up the fact that US shale gas will likely put Australian natural gas producers out of business when it is unleashed upon world markets.
With gas trains costing in the multibillions, this is very serious business. US shale gas is on the market for a fifth the price of Australian gas. US gas can be landed in Asia at half the price of Australian gas. Local gas users are going ballistic because they can't get a guaranteed supply of gas from local gas producers except at extortionate prices. This assumes the US Government will give shale gas producers export licenses, but the first shipment of US gas will arrive in Asia in 2015 -- surely the first of a tidal wave of such shipments. Within 20 years, the US will be self sufficient in petroleum products and will be able to do away with economic lunacy like ethanol for fuel.
Of the Australian petroleum producers, Santos is the most exposed. Santos is a major partner in one of the three gas trains planned for Gladstone, a port city in Queensland. Santos is offering an inferior product, namely coal seam gas, which has only half the heating value of natural gas. The company is very unpopular with land owners, who are seeing their farms destroyed by gas wells. Coal seam gas is not produced by the notorious fracking procedure, though occasionally it is similar, but this doesn't make it any more popular with the public.
Most gas these days is sold on long term contract. With more gas coming on stream, more gas will be sold on the spot market, meaning customers will be able to play one supplier off against the other. Is it likely Tokyo Power, for example, will pay double, or five times, for Australian gas when US gas will do the same job?
For further information, see "US shale gas will change the world" by Jeffry Babb (News Weekly, 21 July 2012)
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