Perth USAsia Centre senior fellow Mark Stickells and director Andrew Pickford issued a report last month called Smooth Sailing? LNG Tipping Points In the Zone and Geopolitical Implications, spelling out unforeseen LNG tipping points could radically alter the outlook.
Perth-based Stickells is the University of Western Australia's director of business development, while Quebec-based Pickford is an adjunct research Fellow at UWA.
Until recently Stickells was also director of UWA's Energy and Minerals Institute and CEO of the WA Energy Research Alliance.
The pair said that the history of LNG and other energy transitions suggests there is "quite likely" to be several LNG tipping points over the next 10 years.
Even a continuation of current trends would change the nature of maritime security concerns and make them central to energy security and trade, they said.
Australia is poised to become the world's biggest LNG exporter just as ASEAN nations are starting a transition to become net importers of LNG, ending their roles as traditional suppliers.
"Indonesia's LNG transition, as an established oil supplier, means that it will soon become concerned about naval routes for imported energy in an increasingly contested maritime region," they said.
Meanwhile newer LNG importers, China and India, are starting to influence the market, and the South China Sea and access to the Indian Ocean are becoming flashpoints where energy security, foreign policy interests and competition among major powers are heavily intertwined.
While the current oversupplied LNG market would respond to most supply shocks without much fuss, the academics warned that once the market returns to balance in about 2022 there will be less flexibility.
It is then, they say, that a supply shock could create a larger price environment, and potentially shortages, which would quickly create economic and geopolitical ripples.
When the US becomes a larger LNG exporter it could also link this trade with geopolitical objectives.
The academics say several of these tipping points would encourage greater levels of US-Japan LNG trade and cooperation, which would turn LNG supply into more of a geopolitical tool akin to oil and may lead to closer producer-supplier relations.
This would reverse the trend of substantial LNG market liquidity.
"Severely reducing supply or restricting the movement of natural gas during a tight market with rising prices could produce more extreme political and geopolitical responses," the academics said.
Impacts on WA and Australia
WA's LNG capacity will reach nearly 50 million tonnes per annum once Gorgon, Wheatstone and Prelude all reach their full potential, and any substantial changes or even temporary shocks to regional LNG markets would have a direct impact on the state, the academics said.
"While the long-term nature of LNG contracts mitigates against the swings experienced in the iron ore industry, its large size will mean that any slumps will be felt across the economy," they said.
Though Perth has been interlinked with the east Asian energy and political trends since sending its first shipment of LNG in 1989, the pair said industry and policymakers needed to continuously fine-tune their understanding of the region and consider tipping points which could upturn the status quo.
Australian political discourse at a federal level has traditionally only engaged in proxy debates over LNG like indirect subsidies or supporting the original LNG agreement with Japan through the take-or-pay contract for the domestic supply of gas.
However, things have changed of late with the east coast energy crisis forcing Prime Minister Malcolm Turnbull to intervene and get LNG producers to agree to supply the domestic market when asked to by the energy regulator.
Yet the UWA academics see further potential need for the feds to keep a closer eye on global LNG moves, particularly as the prospect of the US exporting larger volumes of LNG to Japan or South Korea will bring it into direct competition with Australia.
"LNG deals and agreements within WA have always been dealt with at the highest level of government," they said.
"However, what happens when the premier of the day needs to balance geopolitical and market concerns relating to the differing objectives of Indo-Pacific capitals, Canberra and Washington?
"Aside from being energy literate, there is an increasing need for geopolitical literacy and nuance from both leaders and their opposition counterparts."
Citing Roman philosopher Seneca, the pair quipped: "If a man knows not to which port he sails, no wind is favourable".
Considering this, they said, the future of the LNG sector in the state, while important, remains uncertain given all those potential tipping points.
"How WA responds to the next great LNG tipping point may influence the direction and state of the industry which emerges," they concluded.
