This excerpt is from a report that is available to subscribers of Stratas Advisors’ Asia, Global LNG and Global Natural Gas services.

The Australian Energy Market Operator (AEMO), which operates and manages a variety of the country’s gas and electricity market functions, warns of a looming power crisis in parts of eastern Australia due to a potential gas supply shortage.

The warning marks a stark reversal of fortune for the country that not too long ago was buoyed by the promise of abundant natural gas and LNG exports.

The report warns of an insufficient supply to meet domestic consumption levels as soon as the summer of 2018-2019. The shortage is expected to hit hardest in South Australia, New South Wales and Victoria.

The AEMO suggests that either gas production needs to increase to meet the demands of gas-fired power plants or the National Electricity Market (NEM) needs to turn to the rapid implementation of non-gas electricity generating sources.

According to our forecasts, the huge increase in Australian gas demand is being fueled by new liquefaction trains, as seen in the chart. LNG exports will more than double in 2018 from the pre-2015 levels, and when this wave of investment is completely online a fourfold increase is not unreasonable to expect.

While the logic of building the country’s LNG imports on the heels of several hundred billion dollars of investment seems suspect, it may be the best solution for residential, commercial and industrial consumers in the southeast. The current strain on the gas market has caused prices to skyrocket, with some parts of eastern Australia paying as much as $26-28/MMBtu. That's nearly seven times the price of Henry Hub in some instances.

Despite the outward contradiction, it will likely take simultaneous investment in liquefaction and regasification terminals, expansion of pipelines from other Australian producing regions, and the pursuit of more exploration and production in certain regions to prevent a critical gas shortage in parts of the world’s soon-to-be largest LNG exporter.