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Energy

Australia on track to become world superpower in energy exports

A new report claims Australia could become an energy powerhouse within four years. But whether the predicted rise in prominence eventuates may depend largely on how quickly other competitors move into the Asian market.

Australia is rich in natural resources. Raw materials like iron ore and coal make up the bulk of the country's exports, and thanks to its location on Asia's doorstep, there is no shortage of demand for these commodities.

But it's a surge in investments in another resource sector - liquefied natural gas (LNG) – that could set Australia on a path to become a global force in energy exports. Industry Minister Ian Macfarlane announced in October that Australia would soon become the second largest, if not the largest, exporter of LNG in the world.

Last week the Minister's predictions received some backing in the form of a report released by investment bank Morgan Stanley. According to the bank, a “huge ramp-up” of investment down under could see Australia overtake Qatar and Malaysia to become the world's biggest exporter of LNG as early as 2017.

LNG exports from Australia "could be the next big thing," the bank said in the report, adding that the boost could allow Australia to record a current account surplus for the first time in almost four decades.

"It's difficult to overestimate the long-term structural importance of this industry to Australia," said Geoffrey Kendrick, the bank's East Asia expert based in Hong Kong. He estimates the value of Australia's LNG exports will grow from AU$16 billion ($14 billion, 10.3 billion euros) to around AU$46 billion over the next four years. This would mean the combined earnings from coal and LNG would match the income from iron ore - Australia's biggest export, worth AU$65 billion a year.

Flurry of LNG investments

But it's not there quite yet. Australia is the third largest producer of liquefied natural gas in the world, behind Qatar and Malaysia, according to the International Energy Agency. Most of Australia's gas is shipped to Japan, while the lion's share of its iron ore and coal is exported to its biggest trading partner, China.

A coal mine in Australia

The bulk of Australia's coal and iron ore is sold to China

A combination of valuable natural resources and a favorable geographical position has helped Australia become an important energy supplier. Japan, in particular, has been relying on LNG imports after the Fukushima disaster in March 2011 forced the shutdown of its nuclear reactors.

Another reason Australia is in a strong position to become an energy powerhouse by 2017, says Kendrick, is that it's been expanding its LNG production capacity since the industry began in the 1990s. Australia now has more LNG projects in the pipeline than any other country, and it will reap the benefits once construction of these projects is completed in the second half of the decade.

A costly business

The United States and Canada also have several LNG plants in the works, but so far they lack the infrastructure to get the gas to Asia. Building export facilities to transport LNG takes time and money. Once the gas is extracted, it needs to be chilled and turned into liquid so it can be stored on a ship, before later being returned to gas.

"I can't stress enough how significant the barriers are here," said Kendrick. "It takes multiple years to produce one export facility...and it costs multi-billion dollars in terms of infrastructure." He believes Australia will remain the world's top LNG exporter from 2017 until at least 2025, and that it will take some time before the US emerges as a serious competitor. "In 10 or 15 years from now it's possible they'll start to catch up," he said.

A boat passing through the Panama Canal

An expansion of the Panama Canal aims to provide passage to LNG ships

But Vlado Vivoda, a research fellow at Australia's Griffith University's Asia Institute in Queensland, isn't convinced Australia will be able to climb to the top of the ladder of LNG exporters by 2017. Competition from other players could "really slow down Australia's fortunes," he said, adding that the high costs of LNG projects in Australia compared to similar projects in Canada or Mozambique could also put off investors.

"This is a very important point to be made because it's generally overlooked in Australia, especially by the government, which remains very bullish about these huge predictions," he said.

Competition from North America

Australia's rising significance as an energy provider in Asia will only strengthen the existing American pivot towards the region, said Jeff Colgan, an expert on the geopolitics of oil at Washington's American University.

"It looks like there's going to be exports from the United States potentially to either Japan or Korea or other Asian customers, that puts the US and Australia in a potentially competitive position," he said.

As the value of the commodities being traded goes up, he added, shipping lanes in East Asia and the South Pacific would also become increasingly valuable: "And so any tensions over those shipping lanes would take on even more heightened salience and importance geopolitically."

Foot on the gas as renewables sidelined

Solar panels

Solar energy ignored?

According to the World Energy Outlook 2013 report, Asia's future energy needs will deliver a "golden age" for the Australian economy. India will soon be the world's largest coal importer, and China will overtake the United States as the world's biggest importer of oil, while at the same time importing more coal and iron ore to produce steel.

In Australia, the dominance of resource exports has come at the expense of developing renewable energies like solar and wind, according to Vivoda. "They remain at around two percent of overall energy supply, which is bizarre when you think about how much potential there is," he said. "The government just remains committed first and foremost to making as much money as possible from exports off traditional energy sources."

If Australia manages to stay on target to become the world's top LNG exporter beyond 2017, this isn't likely to change.

DW.DE