Mounting costs threaten gas golden age: IEA

The “golden age of gas” predicted by the International Energy Agency two years ago faces mounting pressure from increased coal consumption and community concerns.

According to IEA chief economist Fatih Birol the rising cost of resource operations in Australia isn’t helping the emerging gas sector.

Birol has also warned that there are challenges on both the supply and demand side for gas, The Australian reported.

"Not all the roads lead to a golden age of gas. There are a number of question marks for Australia and other gas producers," Birol said.

"We see strong growth of gas but globally there will be very harsh competition between gas and coal."

Birol explained that the US market is starting to see coal use once again increase as domestic gas prices rise, and European gas consumption has dropped off since 2011 when the IEA released a report titled The Golden Age of Gas.Advertisement

"In gas, companies also still need to get the licence to operate in terms of shale and coal-bed methane production," he said.

In Australia over $200 billion has been invested into LNG over the last decade, an accomplishment which Birol said has set the country on track to become the world’s top producer, but he cautioned more work needs to be done for the good times to continue.

"Australia has its own pressures, in terms of investment, like the increasing costs," Birol said.

"Except for that the investment boom is very impressive.

"As somebody sitting in Paris and trying to have a global overview of energy markets, I can tell you the entire global energy industry sees this as a very impressive move."

It costs about 20 to 30 per cent more than competing nations to build an LNG plant in Australia, the Australian Petroleum Production and Exploration Association (APPEA) chairman David Knox explained.

In his opening address at APPEA’s conference today, Knox calls on industry and government to keep Australia competitive.

Industry needs to work towards productivity gains and increase collaboration, and government needs to implement stable tax and regulation policies and cut red tape, he said.

"Our challenge to remain competitive and to successfully attract the next wave of LNG investment is a real one — and responding to it is urgent," Knox said.

Even though Australia needs to increase cost controls and the gas sector has lost some ground to coal, Birol said Australia is in a good position.

"For me the golden age of gas is very likely, and a golden age of coal is also likely, which means it is a golden age of Australia," he said.

Continued economic growth in China is expected to drive Australian LNG demand, with Chinese gas use tipped to double by 2020.

"A big portion of this should be imported and Australia could play a pivotal role," he said.

"The surprise may come if China is able to replicate a similar story to the US in terms of unconventional natural gas, but I don't expect significant (production) growth in China before 2020."

Knox highlights that the LNG industry has paid $68 billion in taxes and royalties since 1989 and that this year $30 billion of capital expenditure would be made.

By 2020, the industry is forecast to pay a combined total of $13 billion of tax a year.

"At a time when government revenues are under pressure, this is good news for all Australians," Knox will say in his speech.

Knox is also expected to touch on social issues as coal seam gas opposition increases.

"To achieve support we need to continue to ensure that the impact of our operations on water, on air quality or on sea life is truly minimised," Knox says.

"We have to continue our work to understand the education and skills training required to provide real opportunities for local employment and continue to listen to communities to understand their concerns."

The conference will also discuss the issue of exporting Australia’s gas reserves when local demand and prices are tipped to soar.

Currently $70bn of coal-seam gas export projects are in the pipeline.

"Talk of reserving Australia's gas for domestic use will keep it in the ground, talk of slowing the industry will slow economic growth," Knox said.

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