AUSTRALIA is looking like the energy equivalent of El Dorado, with the $50 billion Gorgon Project about to get the green light, and other gas and uranium projects worth billions of dollars ready to roll in the next few years.
Environment Minister Peter Garrett confirmed on Friday he would decide this week whether to approve the giant Gorgon gas project, off Western Australia.
Given the recent positive publicity the Rudd government has squeezed out of the signing of the 20-year supply contract with China, Garrett has no choice but to give it the green light, leaving the Gorgon partners to make a final investment decision within weeks.
The Gorgon field, which has potential reserves of more than 40 trillion cubic feet of gas, would be the largest resources project in Australia.
It will cost $50bn to build and has already struck two very big deals: one with China to supply $50bn of liquefied natural gas (LNG), and one with India's Petronet to sell Gorgon gas during the next 20 years.
But the queue of other projects in different parts of the country is nothing short of astounding.
Consolidation is likely, with huge implications for ancillary sectors such as engineering and construction.
In a report titled Time to Ride the Australian Capex Wave: $US300 billion and counting, leading Merrill Lynch analysts Mark Hume and Kevin O'Connor estimate that the Australian oilfield service, engineering and construction space will be a significant beneficiary of a potentially massive surge in capital investment from LNG, mining/resource and government-led infrastructure projects.
Merrills forecasts a 50 per cent annualised rise in oilfield/engineering and construction-related capital expenditure in Australia over the next four years. "This capex wave will be driven by a combination of upstream LNG spend; mining/resources investment; and government-led infrastructure stimulus."
It is not hard to see why.
Australia is trying to sell more than 100 trillion cubic feet of gas, potentially lifting its LNG output to 140 million tonnes a year by 2020, from 19 million tonnes now.
This would catapult Australia to the No1 global supplier of LNG, ahead of Qatar.
Merrills estimates that it will cost up to $US227bn ($275bn) over the next decade to meet this goal, and that final investment decisions on $127bn worth of projects will be made in the next two years.
"While project deferral and/or complete cancellation is inevitable, we see the global LNG market moving to a deficit by 2015-06, with over 90m tonnes per annum of new supply required by 2020. Although meaningful cashflows are unlikely before 2014 from these projects, we still see a number of significant global upstream companies through which to play the LNG supply wave," the report says.
Using this reasoning, it slaps a buy recommendation on stocks including Leighton Holdings, which is the biggest mining contractor in the world and the biggest infrastructure contractor in the country.
Leighton's Wal King forecasts a return to robust earnings growth by 2011 as his company targets work in the booming energy sector and government infrastructure spending in Australia, Asia and the Middle East.
Specialist engineering group WorleyParsons has also earmarked LNG as one of its primary growth areas. Worley is already selling services to 11 LNG projects, including the two already operating on the North West Shelf and Darwin, and nine of the proposed projects.
And it is also making money from LNG, even from projects that might never be developed, because the front-end design and government approvals process for these developments is huge.
While there is a lot of talk about how much of this $US300bn worth of projects will be funded, along with the $200bn of infrastructure funding promised by state and federal governments, much of it will come from the private sector and overseas. In the case of the big coal-seam gas (CSG), nuclear and LNG projects, the big international operators are expected to jump on board. In infrastructure, the hope is that private-sector interest will be rekindled, superannuation funds will get involved and governments will sell some assets to fund new projects.
The Grogon partners are international heavyweights with deep pockets: ExxonMobil, Chevron and Shell.
And Origin Energy's plans to build a four-train LNG plant in Gladstone won't happen without its US joint venture partner, ConocoPhillips.
Last week, Origin confirmed project capital expenditure of $35bn for the project and announced it had secured a location for the project.
Origin was joined with a flood of announcements by Santos, Woodside Petroleum and some of the smaller players about their plans for LNG, CSG and uranium.
Santos discussed the possibility of doubling the size of its proposed Gladstone LNG joint venture early next year, while Australia's No2 oil and gas producer Woodside said it was looking to add four extra production trains at its Pluto gas project, more than earlier planned, to tap growing gas demand in the Asian-Pacific region.
Woodside had previously planned up to three trains at the $12bn Pluto project on the northwest coast of Australia, with one unit with an annual capacity of 4.3 million tonnes currently under construction. First gas production is scheduled for next year.
"We're very bullish about the Pluto expansion. It's not a question of if, but a question of when. And we're confident that we can reach a final investment decision on train two by the end of 2010," Woodside boss Don Voelte told a briefing following Woodside's half-year results.
Woodside is planning to build two other LNG terminals in northwestern Australia, Browse and Sunrise, and plans to increase LNG production tenfold to 20 million tonnes a year by 2020.
There is no doubt that not all projects will get up, but most will go ahead.
The reasons are simple: massive demand from China and India, the close proximity of Australia to Asia and the stable political outlook.
For instance, BG Group recently announced plans to focus on the development of its Australian assets rather than developing its Nigerian OKLNG project, under construction at Olokola, Nigeria.
The cost of the delayed project has risen, with the Nigerian government planning to divert feedgas intended for the project towards the domestic market.
There is little price or market risk for Australian producers of LNG in the Asia-Pacific zone because they sell most of their volumes under medium- to long-term contracts. These contracts contain "take or pay" provisions covering the volumes contracted. The upshot is even if a utility does not take delivery of the LNG they are still obliged to pay for it. Finding creditworthy counterparties is paramount.
With so many opportunities -- LNG, CSG and more than 40 per cent of the world's known uranium reserves -- Australia is shaping up as the world's energy superpower, and most of it is relatively clean energy.
Stay tuned
MEO Price at posting:
52.5¢ Sentiment: Buy Disclosure: Held
