Recently, Australian state and federal officials, industry leaders, and international experts convened in Sydney at the third annual Eastern Australian Energy Markets Outlook conference to assess the prospects for the energy supply chain in Australia vis-à-vis their international competitors, including the United States.
As long-time military allies and economic partners that share a strong diplomatic friendship, the ties that bind Australia and the U.S. run deep. When it comes to exporting the vast natural gas resources found in both countries, however, the U.S. won’t hesitate to compete in the Asian markets so vital to Australia’s burgeoning energy industry. Friendship is friendship, but business is business.
As such, in light of energy developments in the past year — including the decision by Santos and GdF’s Suez to scrap their floating LNG project in the north of Australia — there exists a pressing need for Australia to reexamine its regulatory and export policies just as the U.S. has in recent years.
The “Shale Gale” sweeping the United States has been driven by a surplus of natural gas production combined with a helpful regulatory environment enabled by the belief that American energy independence is finally within reach. In his 2014 State of the Union Address, President Obama duly recognized natural gas’ role as one that would strengthen U.S. manufacturing, create well-paying jobs, generate revenues, reduce emissions, and lower consumer energy prices.
As a natural corollary to increased domestic production, the U.S. is also eyeing myriad export opportunities around the world. The benefits are simply too attractive for the Administration to pass up. As a result, the U.S. government has been persuaded to speed up the approval process for large infrastructure projects designed to export liquefied natural gas to markets abroad.
With estimates of American natural gas production increasing by 56 percent over the next 20 years, the U.S. is looking to export that natural gas to Asia – where demand is expected to grow in equivalent measure. The U.S. knows that its most significant competition for the Pacific market will come from its close friend and ally, Australia.
However, given Australia’s current regulatory and policy regime governing natural gas exploration and exports, this competition has become an incentive rather than a deterrent. If Australia chooses not to develop its domestic resources to their fullest potential, the U.S. will rise to fill in the void in the market.
While Prime Minister Abbott has tasked his Administration with drafting a White Paper on Australia’s energy needs, much more must be done to create the regulatory structure that will allow Australia to become one of the world’s top producers and exporters of natural gas. As an effective first step, Australia could reach out to its would-be adversary, America, in ways that elevate cooperation over competition. There remains great potential for Australia and the U.S. to work together as close allies in the energy security arena.
The nations can enhance existing government-to-government programs that focus on environmental impact, regulatory policy, political stability, and most importantly, cutting edge research and development. They can also share strategies on how state/territorial regulation can work in tandem with federal policy to maximize production while minimizing stakeholder concerns about sustainability and other complicating factors.
This public spirit of cooperation is already beginning. The Obama Administration has expressed its desire to transfer U.S. know-how abroad as a means to ensure global energy security, and a strong historic relationship makes Australia a suitable proving ground for that commitment. As another hopeful sign of cooperation, the Premier of Queensland has announced the opening of a new Trade and Investment Queensland North America Office in Houston, Texas – America’s energy heartland.
With numerous LNG projects underway with the potential to yield billions in revenues, Australia has created a window of opportunity to be a major player in Asian energy markets — but that window is closing fast. To withstand the potential challenges coming from across the Pacific, it must implement a regulatory culture that encourages investment in environmentally responsible natural gas extraction, both onshore and off.
If Australia is to realize its potential as an economic force in its own corner of the world, the time for domestic leadership is now. As we are seeing in the U.S., merely sitting on vast resources of natural gas is not enough. Those resources need to be leveraged in ways that are economically and politically viable.
With Australia, the U.S. is not just a would-be competitor; it is also a partner who is prepared to share very recent lessons we have learned.
Randa Fahmy Hudome was the Associate Deputy Secretary at the U.S. Department of Energy in the George W. Bush Administration and now advises clients on international policy options via www.fahmyhudome.com.
Eric Lebson was a Pentagon strategist from 2007-2013, serving in Australia as Director of Strategic Risk Assessment at Defence from 2011-2013. He is now in charge of the Business Intelligence practice at www.levick.com.
