Australia's largest domestic wool producer may close due to gas prices, page-2

http://www.elgas.com.au/blog/864-natural-gas-shortages-prices-do-not-affect-lpg
LPG

Written by Eric Hahn (Date unknown) Source Elgas

The news of late has been filled with stories about natural gas shortages and rising prices.
However, the media seems to be very confused when it comes to LPG, lumping it in with natural gas.

Just as natural gas and LPG are very different, so is the supply situation for LPG.
In fact, it could not be more different.

The Underlying Cause of the Natural Gas Shortage

Natural gas production in Australia is at an all-time high – up 24.4% in the last 4 years -- driven by off-shore and CSG production, according to BREE.
At the same time, the natural gas industry is warning of shortages and price increase.
And it’s not because of domestic consumption, which was only up 12.4% in the same 2010-2013 time period.
So, how can this be?

Exporting is the Problem

Natural gas exports, in the form of Liquefied Natural Gas (LNG), are driving the projected shortages and anticipated price escalation.
Australia’s LNG industry is rapidly expanding and, combined with growing worldwide demand, powering increases in natural gas exports.

According to BREE, LNG exports are up 34% for the same 2010-2013 time period.
This expansion will only increase as currently under construction LNG facilities are completed.

Before the LNG capacity grew, there was no real way to export natural gas.

Converting it to LNG for Shipping

Shipping natural gas in its gaseous form is not economical so it is liquefied into LNG by chilling it to -161°C.

Since the volume of LNG is 600 times smaller than natural gas in its gaseous state, it is more efficiently transported over long distances, making natural gas exports viable.

Now 3 major LNG export facilities in Gladstone QLD are about to come to be completed, driven by CSG production.

Globalisation of Pricing

Now, instead of just contending with a domestic market, Australian consumers are being forced to compete with LNG consumers around the world.

We are now experiencing the globalisation of our natural gas pricing.
It is this dynamic that is driving up Australian natural gas exports, creating potential shortages and price increases for domestic users.

The upward pressure on natural gas pricing is a direct result of this imbalance
between supply and demand.

This is the case within Australia and in the global marketplace.
LPG is Unaffected

Contrary to the confused reporting on the subject in the media, LPG is not affected by this new natural gas reality.

Not only is Australia completely self-sufficient in LPG but it is also a net exporter of LPG.
In 2013, Australia produced 2.3 Million tonnes of LPG, satisfying a local demand of 1.5 million tonnes with net exports of 815,000 tonnes.

However, Australian LPG exports have dropped 14.1% in that same 2010-2013 time period while domestic LPG production has dropped by 13.9%.

So, Australian domestic LPG supply and demand are in balance. Worldwide, over the last 5 years, LPG consumption was up 2% whilst production was up 3%.

This situation is completely different from natural gas, with LPG supply and demand essentially in equilibrium.

This is true both domestically and worldwide.

The Australian LPG market completed the transition to globalisation long ago.

The domestic price of Australian produced LPG was deregulated back in 1990.

Fortunately, the LPG consumers have already gone over this bump in the road.

As a result, there is no endemic upward pressure on LPG pricing.

Assuming no geo-political upheaval in the world, there is nothing, aside from the normal seasonal variations, on the LPG pricing horizon.

Conclusion

The media, in general, has done a poor job of researching and describing the current natural gas situation.
Describing the LPG and natural gas markets as a homogeneous situation is just incorrect.

Creating high levels of concern for LPG consumers has been needlessly upsetting.

While the magnitude of natural gas shortages and price increases is unknown, the occurrence of both problems is almost inevitable.

There is no short term relief for natural gas consumers in sight.

On the other hand, LPG is under no such pressure.

The LPG market fundamentals are stable and LPG consumers have little reason for concern.