The discovery along Africa’s east coast of the world’s biggest gas finds in a decade threatens to undo investment plans on the other side of the Indian Ocean.
Royal Dutch Shell, BG Group of the UK and France’s Total may scale back projects to build liquefied natural gas export plants in Australia and switch to Tanzania and Mozambique, where the new prospects lie and will cost about half as much, according to Jefferies International.
The LNG boom in Australia, where $180 billion of planned investment was set to make gas the country’s fastest-growing export over the next five years, risks losing strength as labor and material shortages force up building costs. As energy companies consider the next $100 billion of projects, a switch to East Africa would hold back Australia’s market share in China and India, where energy consumption is forecast to rise more than 60 percent by 2030.
“Because of the volume that’s been discovered in East Africa, the economics look to be able to challenge Australian LNG projects, given the cost inflation they have experienced,” said Peter Hutton, an RBC Capital Markets analyst in London. “All companies will have that on their radar.”
The Asian market for LNG, gas that’s chilled to a liquid for shipment by tanker, accounts for about two-thirds of global demand and will grow by 6 percent a year this decade, according to Sanford C. Bernstein & Co. Among six Australian projects scheduled to reach investment decisions in 2013, few will be approved because of climbing costs, Neil Beveridge, a Hong Kong- based analyst at Bernstein, said in a report this month.