Domestic gas producers may need to rely on brownfield developments and floating LNG technology to compete internationally.

A new report from Oxford University says the ability of Australia’s natural gas industry to compete globally could be severely undermined by exorbitant operating costs, despite critical advantages in terms of geographic location and domestic expertise.

Competition within the global LNG market is expected to intensify rapidly as natural gas surges in popularity compared to coal due to pollution concerns and the fracking boom reinvigorates North America’s fossil fuels sector.

The report, issued by Oxford’s Institute of Energy Studies, said that despite the critical advantages enjoyed by Australia’s LNG producers – close proximity to booming gas markets in the Asia-Pacific as well as industry expertise – they may still struggle to compete on an international playing field.

According to the report, high operating costs in Australia mean that “greenfield” projects which are built from the ground up were unlikely to be economically viable.

“Australian greenfield projects are very expensive, meaning that new projects are very unlikely to be commercial,” said the report.

The report points to Shell and PetroChina’s $10 billion Arrow development and the $1.7 billion Fisherman’s Landing development in Queensland, as well as beach Energy’s proposed $1 billion gas export facility in South Australia, as large-scale LNG projects with little likelihood of economic success.

While high operating costs make greenfield gas projects a long shot, brownfield developments based on the expansion of existing plants remain economically viable.

“Brownfield expansions even in a high-cost environment such as Australia can be very competitive in the global gas market compared with other new LNG supply sources,” said the report. “Expansions usually cost about 60 – 70 per cent of equivalent greenfield projects as adding new trains to existing plants enables the project to take advantage of existing infrastructure.”

Another means of avoiding Australia’s high operating costs is the use of the floating LNG technology so strenuously opposed by Colin Barnett when it came to Woodside’s Browse Basin development. The technology entails the use of offshore ship-borne facilities to process, liquefy and store natural gas, obviating the need to build expensive plants on land.

“The authors expect that once the technology becomes proven FLNG projects will proceed relatively rapidly in Australia,” said the report.

The Australian Petroleum Production and Exploration Association (APPEA) said the report is a clear sign that billions of dollars in LNG projects are threatened unless Australia lifts productivity levels and launches labour reforms while reducing red tape.

The report comes just as a slew of gas projects worth more than $160 billion approach completion around Australia, and the federal government launches the construction of a nation-wide gas network connecting Darwin to Sydney for the purpose of facilitating domestic supply.

According to APPEA’s figures 10 major Australia LNG projects will collectively produce over 85 million tonnes of LNG a year by 2020, doubling their contribution to GDP to 3.5 per cent and putting nearly $65 billion into the Australian economy.