US shale gas makes life hard for Australia

Canada has announced its third export gas project aimed at the Asian market. Another export gas project in Texas is likely to get the go-ahead soon. The hopes of US gas consumers for a captive market have been dashed. The availability of low cost feedstocks has revolutionised the US chemical industry but there is just so much shale gas around in the US it would be silly not to take advantage of the current seller's market in Asia.

Australian gas producers have a window of about five years before US gas projects come on stream but after that the market will become very competitive. When the Panama Canal is widened in 2015, it will be economic to ship Texas Gulf coast gas to Asia. That will really set the cat amongst the pigeons. As predicted in my post "Dump Australian Gas Stocks" (16 Nov. 2012) Australian producers, who are committed to multibillion dollar gas trains, are getting nervous about US competition. Australian gas users as seeking some form of reservation for local use but that bird is unlikely to fly,  at least on the terms they are seeking. Also, with shale gas being flared off in the US, it makes no sense not to export it. And the US is a much more reliable supplier than than Oman.

Australian gas producers seem to be getting edgy about missing the market.  With major Australian projects way over budget, Shell has said they will build a floating platform for their Browse project, which will be made in Korea, or some similar country, where workers actually work. Of course, Shell is too smart to say "Australian workers are just too expensive and  strike prone" but as Bob Dylan said "You don't have to be  weatherman to see which way the wind is blowing." Western Australian state Premier Colin Barnett is pushing hard for a land-based facility for Browse, but insiders say he is unlikely to win on this one.

Several other US shale gas export plants are awaiting approval, often with similar stake holders to the Australian projects, for example Shell. It's going to be an interesting couple of years. As for the coal seam gas to be produced in Queensland, it's an inferior product and the wells sunk on agricultural land make it very unpopular with farmers.