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Why the gas boom is bad for Australia

Many commentators have referred to our next boom as the ‘gas boom’, thanks to a plethora of gas projects under development and being built. Forecasts for LNG production will see Australia become the world’s largest exporter of LNG by 2020, overtaking Qatar, the current leader.

Australia currently has three giant liquefied natural gas (LNG) plants up and running around Australia: the North West Shelf Venture, Darwin LNG and Woodside Petroleum’s (ASX: WPL) Pluto LNG. But there are another seven under construction around Australia worth more than $200 billion, and several more are in the feasibility phase. Most projects are located off North-Western Australia, although three are being built in Queensland.

Origin Energy (ASX: ORG) is building the largest LNG project in Queensland with its partners, called Australia Pacific LNG, sourcing its gas mainly from coal seams, and costing an estimated $25 billion. Santos (ASX: STO) are its partners are building the Gladstone LNG plant, with gas piped from inland Queensland gas fields at a forecast cost of $18.5 billion. BG Group & CNOOC are developing the Curtis Island LNG plant, the first globally to use coal seam gas.

But already the massive plants and their thirst for gas are being cited for creating a number of serious issues for Australia. With much of gas produced destined for offshore markets, it means very little will be allocated for local use. That could see Australian gas prices skyrocket, hitting the hip pockets of businesses and consumers alike. Some LNG plants are also reportedly short of the gas they need, which will likely mean even more pressure applied to the supply of gas locally.

The mass of gas exports could also see Australia miss its carbon emissions reduction target. Already the high price of gas locally means replacing dirty, coal-burning power stations with cleaner gas versions is uneconomical.

The United States has also experienced a huge boom in gas (and oil) from shale. But the US has banned LNG exports, only allowing them on a case-by-case basis, which has seen domestic gas prices plummet. As a result, the US has been able to replace masses of coal-fired power stations with cleaner gas ones.

Foolish takeaway

The one potential saviour to the problems is that much of Australia has had very little exploration for gas. Exploration companies Buru Energy (ASX: BRU) and Linc Energy (ASX: LNC) may have already stumbled upon massive reserves of gas in the Canning and Arckaringa Basins respectively, which could alleviate the issues Australia potentially faces.

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