The LNG industry is growing at a rapid rate and it’s set to have an increasingly big impact on the share market at a time when prices for iron ore, Australia’s biggest export commodity, are falling on weakening demand from China.
The focus on gas was foreshadowed in the Federal Budget Papers with expectations that Australia will become the world’s largest exporter of LNG by the end of the decade.
As export markets are developing so too is community anxiety about gas mining and fracking. Metgasco had its drilling licence suspended last week after protest action at its Rosella site, in Northern NSW, obstructed construction. It was alleged that the company had not complied with community consultation requirements.
Santos faced its own protest action as shareholders voted on an action brought by the Wilderness Society. The decision was made not to withdraw from the Narrabri coal-seam gas project.
In M&A news Envestra has received a takeover bid from the Cheung Kong company and Dart Energy has backed a takeover bid by IGas Energy.
International gas news
China and Russia have signed a major 30 year gas supply contract that’s reported to be worth $US400 billion. The deal cements cooperation between the two major powers at a time of geopolitical unrest between Russia and Europe. The deal’s impact on Australia is uncertain but with doubts cast on the reliability of Russian energy supplies, and strong production figures out of China, it seems that local suppliers aren’t overly concerned.
Commentary
The Budget Papers had plenty to say about the Australian gas industry with a positive outlook for expansion and a clear indication that the Australian economy will increasingly depend on the sector for growth.
“In recent times, the majority of resources investment has been in LNG projects to support rising global demand for energy.”
“While new LNG facilities will start to enter into production from around 2014-15, the majority of the increase in LNG export capacity falls outside of the forecast period. The Bureau of Resources and Energy Economics (BREE) is forecasting LNG exports to grow by 117 per cent between 2014 15 and 2016 17 (Chart D) with Australia expected to become the world's largest LNG exporter by the end of the decade.”
The focus on exports in the sector has raised discussion about the impact on domestic prices once the country is exposed to the much higher Asian spot price.
“Towards the end of the forecast period, LNG exports are forecast to start growing rapidly as the first of the large export projects in Queensland and Western Australia enter production. Exports of LNG are forecast to grow by 31 per cent in 2014 15. Overall, non rural commodity exports are forecast to grow by 9 per cent in 2013 14 and 9½ per cent in 2014 15.”
LNG faces opposition
Metgasco Limited
(ASX:MEL) shares took a hit after responding to the government’s suspension of its Rosella exploration drilling program in northern New South Wales. The coal seam gas miner says it is shocked by the government’s decision which relates to its community consultation program, and has defended its position. The company then advised that the Office of Coal Seam Gas had not given them a confirmed date for when it would hand down its evaluation. Despite the setbacks Metgasco says it is committed to its gas resources in the Clarence Moreton Basin.
In the full face of protestors Santos Limited
(ASX:STO) shareholders have voted not to withdraw from the Narrabri coal-seam gas project in New South Wales. The oil and gas explorer’s shareholders were asked to vote on the resolution, brought by the Wilderness Society at the company’s annual general meeting (AGM) in Adelaide last week. The resolution proposed Santos abandon’s its investment of more than $1 billion in the natural gas resources in and around Narrabri. Despite opposition to the project voiced at the AGM 99.22 per cent of shareholders voted for in favour of Santos pushing ahead with the project.
Mergers and acquisitions
Natural gas distributor Envestra Limited
(ASX:ENV) has received a $2.37 billion takeover bid from Li Ka-shing’s, Cheung Kong company. The offer is a premium on Envestra’s last trading price of $1.13 and it trumps a recent $2 billion offer made by APA. The takeover is conditional on approval from Australia’s Foreign Investment Review Board.
Dart Energy Limited
(ASX:DTE) has backed a $211.5 million takeover bid from a UK oil and gas producer IGas Energy Plc (LON:IGAS). The boards of both companies have agreed IGas will acquire Dart through an Australian Scheme of Arrangement on a share exchange basis.
Shifts in major holdings
Woodside Petroleum Limited
(ASX:WPL) has terminated its plans to buy into the Leviathon joint venture in Israel. The oil and gas company’s MOU with the gas project has faced a number of setbacks since late 2012 and the company says they were unable to reach a commercially acceptable outcome.
Oil Search Limited
(ASX:OSH) has completed a share purchase plan raising $184 million on new, fully paid shares. The issue price was $8.20 and the new shares will be allotted on 23 May.
Liquefied Natural Gas Limited
(ASX:LNG) revealed one of its major shareholders has sold down its stake in the company. China-based Huanqui will no longer be a substantial shareholder after selling just over 43 million of its shares to retain only 10 million.
Jacka Resources Limited
(ASX:JKA) has raised more than $2.8 million in an entitlement offer that follows on from a recent $1 million placement. The oil and gas explorer says the raising compliments their development of the Aje field offshore Nigeria.
