Australia’s next resources boom is on the way – but this time it’s going to be gas and New South Wales is going to miss out.
Chevron’s Gorgon gas project in Western Australia and the QCLNG project in Queensland are both scheduled to start exporting next year.
The increasing export volumes could make Australia the world’s largest LNG exporter, overtaking Qatar by 2018 with gas also expected to outdistance coal as the country’s second-largest export, following iron ore.
HSBC today said in a report today that with seven major projects being built around the country, the long-awaited export ramp-up is almost here. It estimates about $US200 billion or 13% of Australia’s current GDP has been spent on building capacity.
The additional revenue for the economy comes at a time when mining’s investment boom is tapering as operations shift gear to focus on production rather than building new operations in the face of lower commodity prices, especially for iron ore and coal.
“New LNG capacity was a key driver of the resources sector investment boom and LNG is now set to be a major driver of export growth over coming years,” HSBC said today.
LNG exports will ramp up strongly from 2015, with volumes expected to rise 70% in 2015/16 and by 42% a year on average over the coming three years.
“We expect this to contribute around 0.7ppt to GDP growth in each of the next three years and an average of almost 3ppt to export growth a year, which is a strong underpinning for GDP growth,” the bank said.
It also expects the growth in resource exports will be enough to offset the decline in investments as projects come online in coming years, “leaving the resources sector a positive contributor to overall GDP growth”.
Although a good portion of Australia’s LNG operations are foreign-owned, meaning profits will go offshore, HSBC said the economy will still benefit from corporate tax and state royalties paid by the companies.
“Although the recent fall in oil prices has introduced some uncertainty about the value of LNG exports that will stem from the ramp-up in production, there is little doubt that LNG export volumes will ramp up in line with new capacity expansions, supporting GDP,” the bank said.
About 90% of Australia’s LNG exports are forward-sold on contracts to China, Japan, Korea, Taiwan and India. However, in order to fill the contracts in the beginning, producers may have to draw on some domestic supply, as not all onshore coal seam gas projects have been completed.
However, without domestic reservation policies in place, Australians could see their gas bills rise in line with global markets, especially in New South Wales which is reliant on interstate imports for supply.
A number of NSW supply contracts expire in the next few years, which leaves the state exposed to the risk of either limited supply or higher prices beyond 2017.
“This could see some redistributional consequences as a result of the new LNG capacity coming online, although it is still clear that the LNG export ramp-up would be a strong positive for overall GDP,” HSBC said.
One solution, HSBC said, was developing more coal seam gas reserves. However, a ban on new petroleum licences for another year in NSW means this won’t happen in the short term.