Aussie! Aussie! Aussie! L-N-G!

by Aaron Levitt | April 4, 2013 9:37 am

Aussie! Aussie! Aussie! L-N-G!

To put it simply: Australia is a resource investor’s dream come true.

The Asian-Pacific nation is a smörgåsbord of commodities, featuring vast reserves of metals, coal and other key natural resources needed to fuel the emerging world’s fast-paced infrastructure build-outs and economic growth. Likewise, its proximity to many of such nations makes it a go-to country for raw materials.

Yes, Australia has certainly earned its nickname of “Asia’s Supermarket.”

Still, while exporting coal[1] and iron ore is all well and good, the country’s longer-term potential could lie somewhere else: the world of shale.

The developed nation is sitting on a bounty of natural gas and coal-bed methane — a bounty that producers in the region have already begun to mobilize and export via liquefied natural gas (LNG).

Plus, with several new projects under construction and in the planning stages, Australia’s LNG position is only set to get stronger. And while there are some risks, investors may be looking at one of the biggest energy markets of the future.

The Projects

Currently, Australia has around 390 trillion cubic feet (Tcf) worth of conventional gas reserves. That makes natural gas its third largest energy resource behind coal and uranium. However, new geospatial surveys estimate that this number is off … by a lot.

A recent report by Geoscience Australia and the Australian Bureau of Resources and Energy Economics shows that Australia’s mid-continent shale and unconventional resources could contain upwards of an additional 400 Tcf worth of natural gas[2]. This will allow the nation to roughly double its natural gas reserves and could spark Australia’s next wave of energy growth.

This upwards revision in natural gas reserves is a huge win for Australia’s exporting capacity. Already, the Aussies are a leader in LNG exports, with nearly 20 million tons of LNG worth $10.47 billion shipped last year. In fact, Australia has already jumped ahead of one-time world leader Qatar when it comes to exporting LNG to energy-starved Japan.

Nonetheless, the nation is also working hard to overtake the Middle East[3] nation as the world’s biggest LNG exporter … especially as several colossal projects take shape over the next few years. Australia currently has around $190 million worth of LNG plants in construction or under development. These plants will produce an estimated 61 million tons of capacity — basically triple current production — and one of them would Australia’s current LNG production by nearly 30% on its own.

Integrated giant Exxon Mobil (NYSE:XOM[4]) and resource kingpin BHP Billiton (NYSE:BHP[5], BBL[6]) are planning to build the world’s largest floating LNG processing and export plant[7] off the northwestern shore of Australia. The Scarborough field LNG plant would be able to produce 6 million to 7 million metric tons worth of LNG per year.

But that’s roughly enough to fuel the LNG needs of Japan — who is the world’s largest importer of natural gas — for only a month. See, analysts also estimate that global liquefied natural gas output may fall short of worldwide demand by more than 100 million metric tons a year by 2025 as current new projects fail to keep pace.

All in all, that spells some big bucks for those firms that operate liquefaction terminals in the nation.

The Plays

While there are some risks to Australia’s LNG goals — such as higher wages and environmental issues, not to mention firms in the U.S. looking to export — the future does look bright for Aussie exports. Playing the growth of these exports could lead to portfolio gains for years to come … and investors don’t have to look far for exposure.

Exxon[8] rival and integrated superstar Chevron (NYSE:CVX[9]) could be one of the biggest plays, for one. Its $52 billion Gorgon LNG project[10] is estimated to be one of the nation’s largest — with a capacity of 15 million tons per year and a reserve of nearly 40 Tcf worth of gas.

Chevron is nearly 60% complete with construction and the project remains on track to ship its first LNG cargo in 2014. Chevron’s neighboring Wheatstone facility will also begin LNG exports[11] in 2016. Already, that facility has racked up impressive long-term contracts for its LNG exports with a variety of Japanese utilities.

All in all, Chevron is definitely poised to capitalize on Australia’s LNG growth.

Another big winner could be Royal Dutch Shell (NYSE:RDS.A[12], RDS.B[13]). Aside from being Chevron’s partner in the Gorgon, Shell is developing the Prelude floating LNG vessel. That massive floating facility is expected to be as long as the Empire State Building and weigh six times as much as the biggest aircraft carrier. And despite the massive size, FLNG facilities are expected to save producers on the cost front.

Finally, for those investors looking for a strictly Aussie play, Woodside Petroleum (PINK:WOPEY[14]) could be the way to go. The firm is Australia’s largest independent oil and gas company, with a history of production spanning decades. More importantly, with the start-up of its Pluto LNG Plant in 2012, Woodside now operates six of the seven LNG[15] processing trains in Australia.

Overall, the LNG story in Australia is only in the early innings and there’s plenty more game to play. For investors, Chevron, Shell or Woodside could all have plenty of upside as Aussie LNG production — and demand — continues to grow.

As of this writing, Aaron Levitt was long RDS.A and RDS.B.

Endnotes:
  1. coal: http://investorplace.com/2013/02/dont-count-on-china-to-buy-americas-coal/
  2. additional 400 Tcf worth of natural gas: http://www.ft.com/intl/cms/s/0/b9e4ffb0-7f16-11e2-89ed-00144feabdc0.html#axzz2PV2cq6Oq
  3. Middle East: http://investorplace.com/2013/02/crude-at-100-why-you-should-care/
  4. XOM: http://studio-5.financialcontent.com/investplace/quote?Symbol=XOM
  5. BHP: http://studio-5.financialcontent.com/investplace/quote?Symbol=BHP
  6. BBL: http://studio-5.financialcontent.com/investplace/quote?Symbol=BBL
  7. world’s largest floating LNG processing and export plant: http://www.reuters.com/article/2013/04/02/us-exxon-bhp-lng-idUSBRE9310C920130402
  8. Exxon: http://investorplace.com/2013/03/exxons-short-on-production-but-you-should-still-go-long/
  9. CVX: http://studio-5.financialcontent.com/investplace/quote?Symbol=CVX
  10. Gorgon LNG project: http://www.chevronaustralia.com/ourbusinesses/gorgon.aspx
  11. LNG exports: http://investorplace.com/hot-topics/lng/
  12. RDS.A: http://studio-5.financialcontent.com/investplace/quote?Symbol=RDS.A
  13. RDS.B: http://studio-5.financialcontent.com/investplace/quote?Symbol=RDS.B
  14. WOPEY: http://studio-5.financialcontent.com/investplace/quote?Symbol=WOPEY
  15. LNG: http://investorplace.com/2012/10/trouble-in-china-for-u-s-lng-exports/

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