Not all gases are the same

The costs of building LNG plants in Australia rises by the month.

What's going on?

For their part gas industry executives finger phantoms: poor productivity, government regulation, stroppy greenies etc. etc.

By making life hard for LNG, they say, the costs of LNG projects in Australia are rising, they say.

A better answer, however, is this: LNG is a bad, uneconomic deal for Australia. Pipeline gas exports to Asia would be cheaper. That's what prices are saying.

Roughly $160 billion of LNG plants are now planned for Australia. That's roughly 16% of GDP. By the time you read this, prices probably will have risen again.

The goal of all this LNG infrastructure will be to export roughly 55 billion cubic meters per year of Australian natural gas to China, Japan and South Korea.

Here at Grenatec, we estimate a natural gas pipeline of equivalent capacity could be built between Australia and North Asia for between $125-200 billion -- depending on topology.

We reach our figures by analysing prices of comparable natural gas pipelines elsewhere. These include Langeled in the North Sea, Nordstream in the Baltic Sea and the proposed Trans-ASEAN Gas Pipeline in Southeast Asia.

These show isn't Australia isn't some idiosyncratically high-priced economy. Australia's productivity, regulation and greenies are no different than elsewhere.

What's different is that Australia's gas industry is ignoring what prices are now trumpeting: LNG is a bad long-term economic deal.

There's two reasons for this.

The first: LNG's carbon footrprint is horrible. The arrival of carbon pricing is exposing this. That's driving up LNG project costs. All quite rational.

The second: LNG has a finite, short-term economic lifespan. Building inefficient, short-term infrastructure IS expensive. Rising LNG plant prices merely reflect these dead-end economics.

LNG requires compressing feedstock natural gas 600 times so it can be shipped to in special, single-purpose tankers for decompression and pipeline delivery at the far end. All this is energy intensive. This creates greenhouse gases -- lots of them.

US researchers have totted up these emissions. They've concluded natural gas shipped to market as LNG for eventual combustion at customer-end gas plants creates 'life-cycle' greenhouse gases HIGHER than that of coal.

Therefore, LNG takes us backwards in battling climate change. LNG project prices are reflecting this. That's what prices do.

The next problem is technological.

In the transition to a clean energy future, efficient, flexible, adaptable, future-proof, long-term infrastructure is needed.

LNG is none of the above. Pipelines are all of the above.

Given that natural gas will give way to renewable energy (like solar and wind) as well as biofuels, hydrogen and even carbon and storage -- pipelines are much better suited to this energy future than LNG.

Pipelines can carry hydrogen, biofuels and waste carbon. That makes them flexible and adaptable. THAT has future value. It's this 'call' option value that's now being reflected in the attractive relative pricing of pipelines vs. LNG.

In other words, the estimated $160 billion of LNG infrastructure now either under construction or planned in Australia will be written off in just a few decades. Unrepurposable for other energy sources, it will leave behind industrial blight, unemployment and environmental degradation. That's what's pushing up LNG project prices in Australia. We need to heed those market signals.

The transition to a low-emission, clean energy future will take a long time. What's needed is long-term infrastructure of enduring economic utility.

For natural gas, that means pipelines. For Australia, that means building a national natural gas pipeline network. For Australian exports of natural gas, that means building pipelines stretching northward to China, Japan and South Korea.

As this is done, fiber optic cables and high-capacity power lines could be laid alongside, compounding the benefits.

The end result is a Pan-Asian Energy Infrastructure that could serve both Australia and Asia well into the 21st Century. We've seen this movie before. And it ended well. It was called the Internet Revolution. We've all gained from it. It's now the energy industry's turn.

Paying attention to relative pricing in the coming era of carbon pricing represents smart economics in the Asian Century.