Australia limiting LNG exports poses setback to Asia-Pacific gas markets

The Asia-Pacific gas market has suffered another blow after major natural gas producer Australia signaled it could potentially cut down liquified natural gas exports as the region battles tight gas supplies, high prices and competition from gas-short European buyers.

Australia is looking to trim its overseas sales in favor of domestic consumption ahead of a projected shortfall in local supplies next year.

As energy protectionism takes hold globally, last week, the Australian Competition and Consumer Commission called on Canberra to protect domestic gas supplies and curb LNG — cooled natural gas — exports after projecting the east coast of the country could face a shortfall of 56 petajoules of gas next year.

For months, Asia-Pacific region has faced competition for fuel from European buyers looking to replace restricted Russian gas.

These European countries, in scrambling for LNG to mitigate a shortage of pipeline gas ahead of the northern winter, have outbidded some less developed Asian countries.

Most of the gas used on Australia’s east coast is produced by companies that are also LNG exporters to Asia-Pacific and other countries. The ADGSM stops these producers from exporting LNG if there is a shortfall domestically.

While most LNG sales to overseas buyers are made through long-term contracts, Australian LNG producers also sell ad-hoc and non-contracted LNG on the spot market. Countries without the ability to strike competitive long-term contracts are forced to buy them on the spot market.

Gas lobby group the Australian Petroleum Production & Exploration Association however has assuaged markets, saying despite the ACCC warning, there is more than enough gas next year and that there has never been an actual shortfall previously.

LNG prices have soared nearly 80% since before the Ukraine war started in late February, according to the Platts JKM pricing index.

Developing Asian countries like Bangladesh and Pakistan have had to bow out of buying LNG on the spot market.

The proposed Australian cuts amount to roughly 14 LNG cargoes. This is a drop in the ocean of contracted cargoes shipped each month. In July, Australia exported 100 cargoes among over 300 cargoes shipped into Asia.

LNG markets have bigger problems than Australian curbs. Europe’s jostling for Asia-Pacific’s LNG supply remains the biggest threat.

Consequently, the rise in energy prices globally have contributed to the surging inflation that many central banks are racing to rein in.