Australia Seeks to Fill Asia’s Energy Gap Amid Ukraine Crisis | Business and economy

Taipei, Taiwan – As the war in Ukraine upends global commodity markets and triggers a scramble for resources, the crisis is redrawing the energy map of Asia-Pacific. While the picture is far from clear, the region’s emerging contours are already having an outsized effect on Australia’s resource behemoth.

With similar trade profiles, Russia and Australia compete in many key markets, from gas and coal to wheat and barley, ideally positioning Canberra to fill the void left by a sanctioned Kremlin.

Amid geopolitical uncertainties, many Asian markets have fallen back on near and stable democracy to weather the storm.

Woodside, Australia’s largest exporter of liquefied natural gas (LNG), reported growing demand from Democratic Asia. While US and Qatari LNG exports were redirected to Europe in March, Australia sent nine additional shipments to South Korea and Japan and could still win more market share from Russia.

Meanwhile, the country’s coal miners scrambled to meet record demand, driving up prices. Newcastle coal futures, Asia’s benchmark for the commodity, climbed to over $400 a tonne in early March and currently remain at around $350. Some producers reported in April that Australian coal had sold off due to the rush.

“A lot of energy in Asia has been apolitical,” Graeme Bethune, founder of EnergyQuest, an Australian energy consultancy, told Al Jazeera. “But that is changing, as it is everywhere in the world. I think there will be more alignment between democracies in the future…and Australia is seen as a safe and secure trading partner.

Woodside, Australia’s largest LNG exporter, reported growing demand from Democratic Asia [File: David Gray/Reuters]

In the longer term, the outlook is less clear. Although Australia is now seen as an energy backstop for the region, the underlying trend in Asian countries is towards energy self-sufficiency, a trend likely to be accelerated by the current crisis.

Geopolitical pressures, combined with a new set of price incentives, could see an acceleration towards renewables, reducing import dependency and dampening Australian energy demand.

“It would be nice to separate energy from geopolitics, but the reality is you just can’t,” Bruce Robertson, Australian analyst at energy think tank IEEFA, told Al Jazeera.

“Ukraine has been a wake-up call for literally everyone in the world. Governments are looking at Europe, and Germany in particular, and seeing the new need for energy independence. energy at home, you are much safer than depending on imports.

Japan and China, two of the biggest buyers of Australian resources, are both seeking to cut imports of its main energy products. A recent study by academics at the Australian National University warns that rising domestic coal production in China means a huge reduction in Australian imports is imminent, predicting a 25% decline by 2025.

The forecast follows a bitter trade war that has seen Australian coal targeted by unofficial sanctions from China. Although Australian coal that had been stuck in Chinese ports began to clear customs again late last year, the outlook suggests that the product’s best days in China are already behind it.

Challenges for Australian exports

“China doesn’t want to depend on Australia for energy, that’s the main thing,” Robertson said, predicting Beijing’s pivot away from Canberra will also extend to LNG.

“They will likely stay the course with current projects, but are highly unlikely to sign up for new LNG projects in the future.”

“China hasn’t signed new LNG contracts with Australia for several years now,” Bethune added, noting that more contracts had been awarded to American companies, while stressing that it could not be sure of the importance of the role that politics had played.

Bethune said China still needed Australian coking coal for steelmaking and that was likely to remain so for the time being, despite a general trend of Australian import diversification.

Japan is the world’s largest importer of LNG and enjoys a long-standing trading partnership with Australia. Hit by shockwaves from Russia in recent weeks, increased shipments from Australia – already its main supplier with more than 36% of total imports – has helped Japan weather the storm. Yet Tokyo, which announced on Sunday that it would phase out Russian oil in conjunction with its Group of Seven partners, is also aiming for greater self-sufficiency.

“Japan aims to halve its LNG imports by 2030,” Robertson said. “Japan is the largest market for Australian LNG and accounts for around a third of our total exports. If Tokyo hits its target, it would be a serious blow to Australian gas.

As Australian LNG suppliers look to tap into emerging South Asia, these markets present new hurdles.

Pakistan has experienced an LNG shortage marked by power outages and is now in a contract dispute over defaulted projects with multinationals Gunvor and ENI. Bangladesh, meanwhile, has run out of credit to buy LNG at soaring spot market prices.

“I think they were scared off by the volatility and the lack of availability [of gas]”, Robertson said.

“Are they going to keep doubling their gas mileage after this? I think that would be a rather stupid decision.

solar panels in china
The once optimistic outlook for natural gas as a whole is increasingly challenged as renewables become more economically attractive [File: Qilai Shen/Bloomberg]

The once optimistic outlook for natural gas as a whole is increasingly in question, as rising LNG costs and market volatility have made renewables much more attractive.

“For price-sensitive countries, the current environment and volatility is certainly a cause for concern,” Kaushal Ramesh, a Singapore-based researcher at Rystad Energy, told Al Jazeera. “There is a risk that countries will not be able to purchase LNG for the next five years as Europe absorbs global supply.”

Ramesh said many countries will be faced with the choice of continuing to rely on coal and fuel oil or making the leap to renewables.

“At the end of the day, one of the best ways to achieve energy security is to completely sever the link to commodity imports – both from this perspective and from a marginal price perspective, renewables provide that pathway,” he said.

Despite Australia’s dependence on resources, there are still bullish arguments to be made for its energy at the dawn of the renewable energy era.

Australia has the highest solar radiation per square meter of any continent on Earth, receiving around 58 million petajoules of sunlight every year, which is 10,000 times its total energy consumption.

Efforts to leverage this power are underway. The Australia-Asia PowerLink project, due for completion later in the decade, will help power Singapore and Indonesia with the world’s largest solar farm in northern Australia.

“There’s also a growing focus on hydrogen,” Bethune said. “Australia also produces key minerals needed for renewable energy.”

Ramesh said Australia is in a strong position to be a regional renewable energy powerhouse when it comes time to break the commodity tie.

“We understand that there are ongoing discussions about renewable energy exports and the development of green hydrogen and green ammonia hubs,” he said.

One such plant for these new green fuels was granted “coordinated project status” by the Queensland state government last month.

“These projects are still in their early stages, but have caught the eye of current Australian fossil fuel customers in North Asia,” Ramesh said.

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