Australia is a large energy producer that offers an attractive climate for foreign investment in a region defined by growing tension. As the country’s LNG exports increase in the coming years, its importance in the global energy market will rise. China, which has already begun reducing some of its trade barriers, will look for ways to further strengthen its trade relationship with Australia as it becomes the world’s largest LNG exporter by 2018.1
Australia exports 70% of its total energy production, serving as the world’s third-largest LNG exporter and second-largest coal exporter. It is one of the few OECD countries that is a net energy exporter, although it is a net importer of crude oil and refined petroleum products.2 Australia has had to significantly increase its energy imports in recent years to meet domestic demand that is expected to continue to grow. Australia is also poised to become a more significant contributor to the world energy market; it is already the third-largest producer of LNG, and its production and exportation of LNG is only expected to rise over the next few years.
An increasing demand for clean energy, coupled with strict environmental regulations in some Australian states, presents challenges for domestic and international oil companies seeking to develop Australia’s energy resources.3 Chevron is the largest foreign oil producer in Australia, and companies like Shell, ExxonMobil, ConocoPhillips, Inpex (Japan), and Total are actively investing in the country’s upstream hydrocarbon developments.4
Australia is invested in maintaining stability in the South China Sea since 40% of its imports and 60% of its exports pass through its waters. Any disruptions in trade caused by a conflict in the South China Sea would be devastating to Australia’s economy. The sea’s importance to Australian trade will likely only grow as Australia ramps up its exports of LNG, the bulk of which go to Asian markets.
Many fear that Australia could become more friendly with China as the two countries’ trade ties strengthen. Australia and China have already concluded negotiations for a major free-trade agreement that will substantially increase the amount of LNG and petroleum oils traded between the two countries. However, it is very unlikely that greater trade will encourage Australia to develop closer diplomatic or security ties with China, to the detriment of its relationship with the United States. Australia and the United States have a long-standing history of close cooperation on a number of high-priority issues such as counterterrorism and intelligence sharing that trump Australia’s trade with China.