An Aussie Gas Boom That You Won’t Collect

If you’ve been reading Mining Memo for a while, you’ll know we’ve been saying higher energy prices are here to stay.

So, let’s zoom in on the catalyst accelerating that story: the continued disruption in the Strait of Hormuz.

Roughly 34% of the world’s traded crude oil passes through the Strait of Hormuz each year. It’s the single most important chokepoint in global energy markets.

Conflict in the region has disrupted that flow to a degree the International Energy Agency describes as the largest supply disruption in the history of the global oil market.

On and on. You know the story.  

But the key difference we’ve been trying to lay out at Mining Memo is that Hormuz was never going to cause a one-week wobble. Damage to regional energy infrastructure is expected to take years, not months, to repair.

And it’s not just oil

Gas markets are facing their own version of this crunch.

With the recent equity rally in the US, it’s easy to forget that roughly a fifth of global LNG supply has been taken offline, following the attack on Qatar’s Ras Laffan facility.

That’s the largest LNG liquefaction plant in the world. And repairs are expected to take up to five years.

But unlike oil, which can be rerouted along different pipelines, LNG has no easy detour. Once a liquefaction plant remains offline, that supply doesn’t return until the plant is fixed.

The clock is ticking…

Both Asia and Europe will begin entering their respective peak gas demand periods in the second half of this year.

As winter approaches, time is not on the side of gas-dependent countries.   

At the peak of the Hormuz Crisis, you may have seen images of oil tankers streaming toward the US Gulf Coast, as global buyers competed for barrels loaded at American terminals.

And as countries scramble for gas in the latter part of this year, similar scenes could play out in Australia.

You see, Australia has been thrust into becoming the world’s second-largest LNG exporter after Qatar’s supply was disrupted.

But it also holds a prime locational advantage with proximity to Asian markets, stable supply, and insulation from geopolitical risk.

As the world turns to the US for its long-term oil needs, it may soon turn to Australia for long-term gas contracts.  

Japan’s industry minister has already been on record calling Australian LNG the lifeline of regional energy security.

And that could drive a wave of investment in new gas exploration and development, as well as in the expansion of capital-intensive LNG export facilities.

But as an Aussie, will this
 do anything for you?

Probably not.

In a normal year, Australia and Qatar export nearly identical volumes of liquefied natural gas (LNG), with both nations regularly trading the title of the world’s second- and third-largest LNG exporters behind the United States.

In recent years, both countries have exported around 80-81 million tonnes annually. But given the extreme disruptions in the Middle East, Australia is likely to capture a large share of the market from Qatar in the years to come.

But here’s the kicker… While Qatari and Australian export volumes were nearly identical (pre-war), the financial returns differed drastically.

The Qatari government collects significantly more public revenue from these exports, roughly five to six times more than the Australian government.

That’s thanks to Qatar’s direct public ownership of gas resources and higher taxation rates.

Bottom line: if you think you’re going to collect any benefit from rising gas demand in Australia, think again!

So, what should you do?

One option might be to voice your disgust to your local member of parliament. It’s worth a shot, but it probably won’t change much.

Another solution: if the government isn’t going to give you anything from the resources that sit below your feet, then buy the companies that can.

Producers and service companies that are poised to benefit from a potential gas investment surge in Australia.

I’ve got a few ideas, you can check them out here.

Until next time.