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Europe’s Seizure of Natural Gas and Infrastructures May Also Impact Gas-Supplying Australia

published: 2022-06-24 9:30

The Russia-Ukraine war has prompted European countries to seek for alternatives for Russia’s natural gas supply. Australia, as one of the major exporting countries of natural gas, was supposed to enjoy this surge of revenue, however, Europe’s seizure of natural gas has also led to snatching of infrastructures, which made the country realize that it could also become a victim.

Western Australia is the major production area for natural gas in Australia, though regions of significant consumption lie on southeastern cities such as Sydney and Melbourne, and even though there are production areas of natural gas in the southeastern part of Australia, the volume of reserves and production remains low, while the natural gas pipeline that connects Western Australia to Southeastern Australia has yet to be established. Hence, the country had initially planned to construct five natural gas receiving stations at the southeastern part to facilitate provision from the west, and the receiving stations have now also been acquired. With the establishment of these receiving stations on hiatus, the major cities of gas consumption from the southeastern part, and possibly the entire Southeastern Australia, may succumb to gas scission in the next two years.

Such awkward predicament exists due to how natural gas needs to be compressed and condensed to liquefied form before it can be transported by a special liquefied natural gas carrier (LNG), and the liquefied natural gas must undergo vaporization at natural gas receiving stations before they can be transported to gas users through pipelines. Europe was initially relying on Russia for gas provision under direct pipeline connection, and now most sources outside Russia would require shipping for imports of liquefied natural gas.

Europe, having yet to prepare this many infrastructures for natural gas receiving stations, is now seizing floating storage and regasification units (FSRU) that are more flexible in deployment and are able to fulfill re-vaporization requirements. As the name suggests, FSRUs install storage tanks and re-vaporization facilities required by liquefied natural gas receiving stations on ships for maritime operation.

Renting FSRUs is much more convenience compared to construction of fixated natural gas receiving stations, and facilitates easy disposal in the future when natural gas is switched to pipelines or drops in demand, without having to worry that infrastructures may turn into idling equipment. Hence, Australia was initially looking to utilize FSRUs, and has now been beaten by Europe after the Russia-Ukraine war.

FSRU Construction from Scratch Would Wait Until 2026

Take Australia-based Viva Energy as an example, the company had initially planned to construct FSRUs at Geelong that is near Melbourne during 2022, though the particular order placed with Hoegh LNG was snatched by a certain German clients at the end.

Hoegh LNG commented that the company asset would allocated to clients who have signed a contract. Hoegh LNG announced in early May this year that two FSRUs would be supplied to Germany power company RWE, while Greece-based Dynagas also announced to supply two FSRUs to Germany power company Uniper.

There are currently five companies in Australia that have proposed to construct natural gas receiving stations, including Viva Energy, Squadron Energy, Venice Energy, Vopak, and EPIK. Among which, Squadron Energy is the only company that has commenced construction (Port Kembla), which is scheduled to receive natural gas starting from 2023, and will park the FSRU carrier Galleon then.

Venice Energy is working with Greece-based liquefied natural gas transporter GasLog on transforming LNG carriers to FSRUs for its Outer Habor LNG Project at Southern Australia. The company is scheduled to activate a FSRU in the second quarter of 2024, though that also depends on the construction progress of the transformed carriers.

How about building a brand new FSRU from scratch amidst the current shortage? Hoegh LNG commented that a single FSRU that is being built from scratch would be shipped out in 2026 at the earliest.

Without imports of liquefied natural gas, Eastern and Western Australia would face shortages in natural gas during the wintertime of 2024, before exacerbating to shortages throughout the entire Eastern Australia by 2026 and 2027. Hence, the current predicament lies on the obtainment of sufficient infrastructures.

 (Cover photo source: Hoegh LNG)

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