Australia’s Gas Supply Crunch May Turn This Export Loser Into a Winner

Missing out on Australia’s natural gas export boom may be the best thing that happened to Arrow Energy Ltd.

The decision by the Royal Dutch Shell Plc and PetroChina Co. joint-venture to scrap a A$20 billion project to ship Arrow’s fuel overseas as liquefied natural gas looks like a blessing in disguise. The Brisbane-based producer now plans to boost output, allowing it to take advantage of Australian prices pressured higher by tighter supply at home. Meanwhile, rivals that opted to export are grappling with cost overruns, low international prices and mounting criticism as the country faces a looming gas shortage.

“They’re probably thanking their lucky stars they didn’t go ahead with Arrow LNG,” said Graeme Bethune, chief executive officer of EnergyQuest, an Adelaide-based research company.

While Arrow holds “one of the best undeveloped gas sources for the east coast,” only part of it may be immediately viable for development, said Saul Kavonic, an analyst at Wood Mackenzie Ltd. “A lot of the Arrow resource is still relatively costly and needs infrastructure,” he said, adding that he expects some of it to go to the Queensland Curtis plant, which was seen as the outlet for Arrow’s gas after Shell’s 2015 takeover of BG Group Plc.

Arrow could cash in on buoyant domestic prices by keeping supplies at home. Spot LNG in Asia has fallen by about two-thirds since early 2014, according to World Gas Intelligence. Meanwhile, Australian wholesale prices have tripled in the last two years, a February report from the Australian Industry Group found.

“The gap between domestic and LNG prices has narrowed,” said Fat Prophet’s Lennox. “Arrow has done themselves no harm by staying out of the export market when they did.”

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