Australia is also setting themselves up to displace Qatar and become the world's largest exporter of natural gas. Australia's oil and gas producers are planning massive investments in LNG trains, export facilities and floating LNG platforms. In addition, Shell (RDS.A) is building the world's largest ship that can drill, produce and transform deep-water natural gas into LNG. Shell's mother ship, larger than several aircraft carriers, will be parked off Australia's shores and it will feed Asia's LNG fleet. By 2015, Asia should begin to see lower LNG prices.

For Australia, United States and other coal producing nations, thermal coal production has to endure a difficult transformation. Worldwide consumption is adjusting to a long-term decline in demand as natural gas displaces coal in the power sector. It's not just environmental regulation driving the decision, it's economics. A combined cycle gas turbine is a more efficient consumer of fuel than any coal boiler. Add lower natural gas prices into the mix, and coal becomes relatively uncompetitive.

Nevertheless, coal markets will ultimately reach a baseline level of consumption. As Harvard's Michael Porter argued decades ago, the coal industry's cost leaders will own that baseline.

One key metric for achieving a competitive advantage will likely be dollars per million British thermal units ($/MMBtu), not dollars per ton. Owners of high-ranked coal reserves will likely survive the transformation.


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