Dr Konstantin Simonov, National Energy Security Fund (Moscow) and Australia Russia Dialogue, presented a keynote address at the APPEA Conference in Perth on May, 15, 2017.
Russia’s huge gas export ambitions and cheap costs set it up to snatch an increasing share of the Asian LNG market, beating both the United States and Australia on costs, according to a Russian energy expert.
But the claims by Konstantin Simonov, director of the National Energy Security fund in Moscow, were in part countered by Martin Houston, vice-chairman of emerging US-based LNG trader Tellurian Investments, who said the US would be “dangerously competitive” in the LNG market, able to supply at much lower costs than was being envisaged.
The jostling between the pair reflects a potential scenario set out by Dr Simonov in which Russia, Qatar, the US and Australia “cannibalise” each other as they slug it out for customers in Asia, the world’s biggest LNG market.
Dr Simonov, the first Russian speaker in the APPEA conference’s 57-year history, said potential gas development plans put Russia’s export capacity as high as a massive 130 million tonnes a year, but a more realistic figure was 70 million to 75 million tonnes a year of additional Russian exports over the next 15 years, given some plants wouldn’t be economic.
“It’s a huge amount,” Dr Simonov said. “That is why it is an important question what will be the competition between Russian gas and Australian gas.”
“The main question is if we will see this scenario of cannibalism and gas battles between Russia, Australia, the United Sates and Qatar. The main question will be what will be the cost of production in these countries.”
Russia is set to launch its large new Yamal LNG venture this year, with potentially about half of the state-backed project’s 16.5 million tonnes a year of capacity likely to go to Asia, Dr Simonov said. An expansion of the producing Sakhalin project in eastern Russia is also likely to proceed as are new pipelines from Russia to China.
Dr Simonov said that on a capex per unit basis, the Power of Siberia pipeline under construction from Russia to China was “three times cheaper” than Australian LNG. He suggests Australia won’t be able to meet all its LNG contract delivery obligations due to project delays and low prices.
But Dr Simonov’s assertion that US LNG would be “very expensive” based on a US domestic gas price of $US3-$US3.50 per million British thermal units was rejected by Mr Houston, a former chief operating officer at BG Group. Mr Houston said the model of basing US LNG prices on the Henry Hub price plus costs would be transformed by the emergence of a huge volume of “zero-cost” gas from the Permian Basin where gas is produced as a by-product alongside oil.
Mr Houston said Tellurian’s Driftwood project would be able to get gas “on the boat” in Louisiana at just under $US2.50 per MMBTU, well below the Henry Hub price.
“That makes us dangerously competitive and able to access a market which is clearly going to have steep and deep price volatility going forward both in winter and summer,” he said.
President Trump’s supportive policies for the LNG industry and firm endorsement of trade with China would provide further impetus for US exports, Mr Houston added.