Will Australia’s massive new gas plant give Siberia a run for its money?

The opening of a new liquefied natural gas plant in Australia could provide Siberia with a major rival in supplying LNG to Asia, analysts have warned.

Construction is well under way in Yamal, in the Russian Far East, on what will become the second-biggest LNG project in the world, with production of almost 17million tonnes a year. Chinese firms have been involved in financing the large-scale plant at Sabetta, and Russian President Vladimir Putin sees Beijing as a major export partner for the gas.

But a new facility in Queensland, Australia, could provide Siberia with a regional rival in what is quickly becoming an increasingly more competitive LNG market.

The inaugural shipment of the gas from the Queensland Curtis LNG plant on Curtis Island left from Australia’s east coast destined for China earlier this month. Carrying 60,000 metric tonnes, the LNG carrier Methane Rita Andrea was destined was China’s state-owned CNOOC, the Australian company’s largest customer.

The plant at Queensland is the world’s first facility to process coal seam gas, and it is expected it will have an output of about eight million metric tonnes annually.

It is the fourth site operating LNG projects in Australia, with six more planned, and analysts say the country could provide a fierce competitor for operators in Yamal.

Will Australia’s massive new gas plant give Siberia a run for its money? Picture: qgc.com.au

Once all the plants are up and running, Australia’s LNG exports are expected to quadruple from the 23.9 million tonnes shipped last year, making the country the world’s largest producer ahead of Qatar.

Writing on the International Relations and Security Network (ISN), Michael Bradshaw, a professor of global energy at Warwick Business School in the UK, said: “A year ago the prospects for the development of Russian LNG were looking bright.

'The Russian Government had just allowed the limited liberalisation of LNG exports that enabled both Novatek and Rosneft to progress with their projects on the Yamal Peninsula and Sakhalin Island respectively. Now, 12 months on, Novatek is struggling to finance the first train of its three-train project, and progress will inevitably be delayed.

'In general, Asian buyers are unlikely to commit to Russian LNG in the current geopolitical climate, and the LNG market is shifting as new production comes on-stream in Australia and demand softens'.

He added: 'In such a climate, placing Russian projects on hold may be an easy decision to make. To make matters worse, the falling oil price impacts the price of LNG, which, when combined with the impact of financial sanctions and buyer concerns, has left Russia’s LNG plans in tatters'.

The massive Yamal LNG project is one of the largest industrial undertakings in the Arctic, and will eventually involve the drilling of more than 200 wells and the construction of three LNG trains, each with a capacity of 5.5 million tonnes a year. A joint venture between Novatek, Total and the China National Petroleum Corp, it will also house a vast gas terminal and see the commissioning of 16 special icebreaker tankers.

Bovanenkovo gas field, Yamal peninsula. Picture: The Siberian Times 

The new port being built on the Yamal Peninsula, which will be fully operational by 2016, will also provide year-round navigation for vessels carrying goods and gas through the frozen Northern Sea Route. The region is strategically placed to aid the President’s pursuit of new stronger ties with Asian nations, particularly China.

But analysts also say that the emergence of countries in the Pacific into the production of LNG could hinder any thoughts of Russia dominating the lucrative Asian market. Last week Credit Suisse reported that Japan, the world’s biggest buyer of LNG, is no longer interested in fostering relations with the US, Africa and Russia over the gas. Instead, Toyko has turned its focus to Papua New Guinea and Australia, with a Japanese Prime Minster Shinzo recently having visited both countries to strike up deals.

Credit Suisse said: 'As we started 2014, Japan appeared keen to support greenfield LNG capacity in Russia and was interested in the East African developing opportunities in Mozambique and Tanzania. However developments in Ukraine reminded Asian buyers than gas can be a geopolitical tool – and we suspect planning in Japan may have de-prioritised Russia as a greenfield LNG supply source.

Queensland Curtis LNG project is now producing from the first of two liquefaction trains, with the second due to be completed later this year.

David Byers, the Australian Petroleum Production and Exploration Association chief executive, said: 'Extraordinary technology and the emergence of a burgeoning Asian market have allowed industry to produce and commercialize Queensland's enormous gas reserves'.