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Why we’re so upbeat on LNG: Western Australia Premier

Demand for liquefied natural gas (LNG) in Asia is growing and that is positive for Australia, but there are issues with competition and high wage costs are a concern, the Premier of Western Australia said Monday.

According to the International Energy Agency, Australia is the third largest LNG producer in the world after Qatar and Malaysia. Australia hopes to become the world's biggest LNG producer within the next few years.

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"The demand for liquefied natural gas in Asia is growing very strongly so market conditions are positive," Colin Barnett, Premier of Western Australia told CNBC on the sidelines of an oil and gas conference in Perth.

"As a state, we produce 20 million tons of LNG, that's about 8 percent of world supplies. And we will be producing close to about 60 million tons, a trebling in the industry by the end of the decade," he added.

A liquefied natural gas plant stands in Darwin, Australia.
Sergio Dionisio | Bloomberg | Getty Images
A liquefied natural gas plant stands in Darwin, Australia.

Asked about competition in the sector, Barnett said there were concerns such as the productivity of certain projects and high labor costs.

"[LNG] is a great opportunity…but we do need to be competitive and some of the wage claims and wages paid have been exorbitant," Barnett said.

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"It will always be a high-cost, high-wage industry. But it's also an industry that's recognized in Australia as a top supplier in terms of reliability and security in investment," he added.

Oil and gas giant Chevron said at the end of last year that the cost of its huge Gorgon LNG project in the north west of Western Australia has blown out to $54 billion from an original estimate of $37 billion in 2009, according to Australian media reports.

The company cited a high Australian dollar, high wages and low productivity as some of the reasons for the higher costs.

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LNG is a transportable form of energy created by chilling gas until it turns into a much smaller volume of liquid that can be stored on a ship and returned to a gas later through a reheating process.

Barnett said it was unlikely that the industry would see an influx of cheap foreign labor to keep costs down, but added: "I think you will see, because of the level of international competition, the level of wages fall in real terms in coming years because projects are in direct competition."

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