oil/gas the crisis looming beyond 2020, page-20

Kahuna,

What you are saying is true, but there are a couple of very big "yes, buts", especially for the American market.

The first one is that consumers use natural gas, not LNG, and producers produce natural gas, not LNG.

Lets follow the path the gas went through for two consumers.

Mrs Chen with her gas stove in Seoul - she turns it on, and cooks her chimchi and beef.

The gas came from a pipe, that connected to a LNG depot. At the LNG pipe, LNG was gently warmed from a liquid to a gas.

The gas was shipped to the depot in liquid form in an LNG tanker.

The gas was put into the tanker in the North West Shelf 'LNG train'.

In the LNG train, the gas was chilled down really cold under lots of pressure, so it'd go into a liquid.

The LNG train gets the gas in gas form from a wellhead pipe.

OK, thats the 'LNG case' - gas to liquid to gas again, involving a couple of expensive lumps of CapEx and OpEx, as well as lossage as we turn gas to liquids and back again.

Next, Hans in Bremen, cooking his bratwurst and potatos.

He also gets gas out of a pipe, and that pipe is connected to another pipe that comes from Siberia, where it connects to a wellhead pulling gas out of the ground.

This is the 'Direct case' - the gas never gets liquified.

The US used to be a 'Direct case' economy, with gas being produced in Texas, Oklahoma and so on ... but they then ran out of cheap, easily accessible natural gas.

OK, not a problem, we'll just build some LNG cionversaion plants and bring the gas in by tanker.

But we have a problem - NIMBY. No-one wants a big, potentially explosive LNG plant in their back yard, fed by big, potentially explosive LNG tankers. Let alone that unsightly LNG plant depressing all that expensive real estate in the trendy docks district with the nice water views.

So the US doesnt have anywhere near enough LNG conversion facilities.

As well, the big gas fields - Oman, NW Shelf, West Africa - need time to build the big LNG trains.

As well, the LNG tankers are in very short supply, and as soon as they come off the slipway, they are put on duty dragging LNG from the North-West shelf to Seoul and Shanghai.

Thus, the US is chronically short of natural gas, and they simply can't import it.

Oil is easy - a tin can can carry oil.

Gas is hard - you need solid and expensive engineering to keep cold, compressed methane gas under pressure.

Thus, US gas prices are well ahead of where they should be, but we can't go buy, say, Kiwi (6 BCF gas at circa 9 mmcf/day), and then sell that gas in California for a motza.

We just can't get it there, and if we could, they can't turn it back into gas.


Sooo ... while Australian gas is very cheap - circa $2.50 per thousand cubic feet, and American gas is about four times that price, you can't just ship Australian gas to America. It's not a perfect market, the way, say, wheat or soyabeans can be quickly and easily shipped to market.

We'd need a couple of billion dollars of capex on each side to ship Eastern Australian gas to California, and then a couple of billion dollars of CapEx on the other side to convert it.

Then the plants would take time to build.

And thats without the regulatory hassles.

And guess what - the US Coast Guard has just put a delay on the West Coast LNG converter plant.

So, we have the Australian gas market, and we have the US gas market, and until we can move gas from one to the other, you just can't use US gas prices as a base for Australian gas prices.

Ian Whitchurch, who hates Australian gas