Australia has vast natural gas resources and has positioned itself as a major producer. However, the higher costs of liquefied natural gas plant construction likely will lead Australia to delay, cancel or scale down some proposed LNG plants. By 2020, new supplies from emerging LNG-exporting countries could lead Asian natural gas prices to drop significantly — below Australian break-even costs. At that point, the Australian natural gas companies will attempt to force their customers to honor the contracted prices, but in the longer term the firms will be pressured into selling natural gas at market prices, perhaps taking capital expenditure write-downs in the process.
In addition, future LNG projects and expansions may not materialize anytime soon, since they simply are not competitive. The increased costs of Australian LNG projects could mean that Canberra will miss out on new LNG contracts signed in the 2020s. In order to prevent this, Australian LNG project costs need to be reduced by 30 percent. For instance, U.S. LNG plants are being proposed with costs of about $2,000 per metric ton of capacity, while Australia's have a cost of about $3,000 per metric ton of capacity.
Several factors have helped drive up the costs of Australian LNG projects. The simplest explanation is the concurrent boom in Australia's mining and energy sectors. LNG projects have to compete for material supplies and labor pools with massive coal and iron ore projects. Australia's remote regions, where the natural gas is located, simply cannot metabolize the influx of demand for workers and materials like concrete without significant inflation. After the first wave of LNG projects come online in the 2020s, Australia's continued growth in natural gas exports could cease, since the capital that could be spent on increasing Australia's export capacity now has other, more profitable destinations that did not exist when Australia's natural gas export development began.
