Boston, MA -- (SBWIRE) -- 04/15/2014 -- While Australia is set to become a major player in the global liquefied natural gas (LNG) market by the end of the decade, the spiralling costs of existing LNG developments will most likely slow growth momentum, preventing the country from meeting its full gas production and export potential in the decade to come. Gas production and consumption growth could be further threatened by increasing rules on the extraction of coal bed methane. The country will also have to contend with a growing reliance on oil imports as domestic crude oil production experiences weak growth while refining outlook is bleak in face of regional competition.

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The main trends and developments we highlight for Australia's oil and gas sector are:

- Our forecast for gas production is 132.8bcm by 2018, up from 48.2bcm in 2012. This growth will be brought about by the development of gas fields that will come online alongside the completion of LNG projects. We expect about 75% of this gas to be exported as LNG, largely to Asian customers. By 2023, gas production is forecast to hit 143.6bcm, with LNG exports surpassing 100bcm.
- However, further expansion of liquefaction capacity - and consequently exports - could be held back. Spiralling developments costs, owing to a shortage of skilled labour and a strong Australian dollar, together with an expected loosening of the global LNG market as more supplies come online, could worsen the economics of LNG projects in Australia.
- New oil is not likely to flow fast enough to make up for declining production in the country's ageing fields. Total liquids output (excluding refinery gains) fell slightly to 484,200b/d in 2012, according to the US EIA. However, this could see a slight increase on the back of growing natural gas plant liquids output from 2015, as new gas projects supporting LNG developments come online and push up associated liquids production. We forecast total liquids output rising from an estimate of 476,510b/d in 2013 to 517,980b/d in 2018, but slower oil and gas developments from 2018 - resulting from increasingly unfavourable economics, could see production trend downwards again to 488,070b/d by 2023.
- The outlook for Australia's refining segment is poor. The age, small size and relatively low complexity of the country's refineries has rendered them uncompetitive against regional counterparts. The 120,000b/d Geelong refinery would have been closed had Shell failed to find a buyer for it, but Vitol, which took over the plant alongside Shell's other downstream assets in February 2014, promised that it would keep the plant in operation.

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