Australia's much touted liquefied natural gas (LNG) boom may boomerang as not so much as a boom what with the flurry of natural gas discoveries being made in Africa right now. Moreover, the growing building costs in the country spurred by labour and material shortages further pose a threat to the situation.
"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," RBC Capital Markets analyst Peter Hutton told Bloomberg News. "All companies will have that on their radar."
Australia currently has some $180 billion of planned investment in the LNG sector, which would propel the country to overtake Qatar and become the world's fastest-growing export over the next five years.
But the slur of gas discoveries in Africa, particularly in Tanzania and Mozambique, may kill this allusion since building LNG projects in the region only cost half as much than doing it in Australia.
According to Jefferies International Ltd., Tanzania and Mozambique explorers can build two trains in each country with combined costs of only $32 billion. The first LNG export may be shipped as soon as 2018. Comparing it with Australia's Pluto LNG, the most expensive plant ever built, the cost per unit of capacity is 44 per cent lower in Tanzania, the bank said.
And it could still go cheaper in Mozambique, the bank noted. The latter ranked 213 of 227 countries for per capita income.
It also doesn't help that the ongoing global fiscal crisis continue to move mining investors to rethink their investments in Australia.
In a report earlier this month, analyst Dale Nijoka from Ernst & Young LLP said East African LNG "could become more competitive than unsanctioned Australian LNG projects, causing them to be delayed, re-worked or possibly canceled" over the long term.
"There is real competition in the 2020 time frame," David Knox, the chief executive officer at Santos Ltd, said in Bloomberg News. Santos is developing the $18.5 billion Gladstone LNG venture in Australia with Total, Petroliam Nasional Bhd. and Korea Gas Corp. "But we can compete, provided we keep our productivity up, our cost base under reasonable control and we can unlock the resources."
"East Africa has got potential to be a bigger LNG supplier than for example Australia or Qatar on a much lower cost base," Barry Rushworth, CEO of Australia's Pancontinental Oil & Gas NL, said. "People are just not actually realising how much potential East Africa has yet."
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