The mining sector has maintained strong volumes, but a sinking iron ore price has pushed the trade balance into deficit. Hopes are now being pegged to the expansion of LNG exports. Shane Oliver from AMP is an optimist and sees the mining boom having plenty of stamina still to run.
Woodside Petroleum has inked a 20-year liquefied natural gas sale and purchase agreement from Cheniere Energy in Texas and Liquefied Natural Gas (LNG) has announced that Kinder Morgan Louisiana Pipeline will transport gas to LNG’s wholly owned Magnolia LNG project in Louisiana.
Also, AGL Energy has scored the green light to buy New South Wales power producer Macquarie Generation for $1.5 billion, and, Iluka Resources has made an approach to Kenmare Resources Plc in relation to a potential combination of the two companies.
Economic News
This week the Australian Bureau of Statistics released figures on international trade in goods and services for May. The trade deficit has widened this month stretching 145 per cent to $1.9 billion, seasonally adjusted. Exports fell 5 per cent in the month while imports receded by 1 per cent.
Commentary
Finance News Network spoke with AMP Capital Investors Head of Investment Strategy and Chief Economist, Dr Shane Oliver this week, about the growing role of LNG and the competitive landscape.
Will LNG fill the gap as Iron ore comes off the boil?
“There’s no doubt here that we’ve gotten ourselves too pessimistic about the outlook for Australia. The common narrative out there about Australia’s boom coming to an end and that we’re now going to have a bust. Lots of foreigners have stayed away from our banks in anticipation of some kind of housing bust in Australia. I think those sort of doom stories are way overdone.”
“The reality is that we’re now moving from the second mining boom, which was the resources gas investment boom, we’re now coming into the third phase of the resources boom, probably not as strong as the first two, but still pretty good.”
“We'll see gas mines start to export and I think that’s going to be a huge boost to Australia’s real economic activity over the years ahead, we’re already starting to see iron ore export volumes pick-up over the years ahead. We’ll also see gas exports pick-up as well. So that’s one factor that’s going to offset any mining investment that's going to slow down. As long as we can get continued growth in housing activity and construction activity and of course retail sales, then that means we’re going back to a more balanced economy going forward.”
How is the LNG landscape looking going forward?
“There’s a couple of forces operating here. There’s a whole lot of LNG projects from last couple of years, coming to the completion phase, and it’s hoped exports will now pick up, as the volumes flow through from those projects.”
“The good news is that prices are fixed under longer term contracts, I guess the bad news is, longer term, as the US becomes more of a gas producer on the back of the shale oil revolution, then that’s going to be competition. You’ve also got Russia exporting gas to China at relatively cheap rates. Longer term contracts will insulate Australia from the new players but in some time in the decades ahead I think we’ll see more competition which will put downward pressure on gas prices.”
How can Australia best deal with growing competition?
“It’s a competitive environment out there. There’s not much we can do to stop America getting to a point where it can export its excess gas. Likewise Russia, the only thing that we can do in Australia is to make sure we’re as competitive as possible and make sure our infrastructure is up to scratch and that our wages are in line with those internationally.”
Deals for growth
AGL Energy Limited
(ASX:AGK) has scored the green light to buy New South Wales power producer Macquarie Generation for $1.5 billion. The energy giant has received approval from Australia’s Competition Tribunal after Australia’s competition regulator rejected the bid in March. The latest ruling overturns the Australian Competition and Consumer Commission’s decision to try and block the power asset sale.
Iluka Resources Limited
(ASX:ILU) has made an approach to Kenmare Resources Plc in relation to a potential combination of the two companies. The company made no commitments to a transaction with the Dublin based mining company Kenmare, but said talks were consistent with its strategy of exploring mineral sands opportunities.
Origin Energy Limited’s
(ASX:ORG) 53 per cent owned Contact Energy (NZE:CEN) has inked a deal with dual listed Genesis Energy Limited (ASX:GNE, NZE:GNE) and extended a supply contract with Fonterra. New Zealand listed Contact will buy about 27 petajoules of gas from Genesis from 1 January 2015 to 31 December 2020.
Karoon Gas Australia Limited
(ASX:KAR) jumped to the top 200’s best performer in June after the exploration company sold its stake in the Browse Basin offshore gasfield to Origin Energy Limited
(ASX:ORG) for $800 million.
LNG export growth
Santos Limited
(ASX:STO) says its $20 billion Gladstone LNG project in Queensland is on track for first liquefied natural gas in 2015. The oil and gas producer has reported strong construction progress across the integrated project this year and notes better than expected performance from the Fairview wells.
Woodside Petroleum Limited
(ASX:WPL) has inked a 20-year liquefied natural gas sale and purchase agreement from Cheniere Energy and the Corpus Christi Liquefaction terminal in texas. Under the deal Woodside will buy about 0.85 million tonnes of LNG per annum.
Shares in Oil Search Limited
(ASX:OSH) also gained ground after boosting its annual output forecast following the first shipment of liquefied natural gas (LNG) from the $US19 billion PNG LNG Project ahead of schedule.
Liquefied Natural Gas Limited
(ASX:LNG) has announced that Kinder Morgan Louisiana Pipeline has filed an application to transport gas to LNG’s wholly owned Magnolia LNG project in the Port of Lake Charles, Louisiana. This puts LNG another step closer towards achieving financial close on the project in mid 2015.
Setbacks
Seven Group Holdings Limited
(ASX:SVW) will pay up to $30 million to help fund Nexus Energy Limited
(ASX:NXS) following its failed takeover of the company. The oil and gas junior headed into voluntary administration a fortnight ago after shareholders voted down Seven’s 2 cent per share takeover offer.
Gas drilling at Metgasco Limited’s
(ASX:MEL) Rosella well in Northern NSW will remain suspended. The company had made requests to the NSW Office of Coal Seam Gas for the removal of the suspension, rejecting claims it had failed to conduct an appropriate community consultation program. The NSW government will maintain the suspension.
Roc Oil
(ASX:ROC) has received an offer from a third party that could affect its prospective merger with Horizon Oil Limited
(ASX:HZN). The oil producer hasn’t released any details about who made the unsolicited offer but it has informed Horizon Oil as part of its merger obligations. The $800 million merger between Roc Oil and horizon was given the tick of approval by an independent expert earlier this month.
Caltex Australia Limited
(ASX:CTX) has forecast first-half profits coming in lower than last year’s as well as a loss in the refining and supply division. The petroleum company’s historic cost profit after tax for the half is forecast to be down to between $150 million and $170 million, from $195 million in 2013. The company says the conversion of the Kurnell refinery is partly to blame with production impacts weighing on the refining and supply division.
New find
Shares in Paladin Energy Limited
(ASX:PDN) have risen after releasing an updated mineral resource for the Michelin Uranium Deposit in Labrador, Canada. The uranium producer reports the measured and indicated mineral resource have increased 25 per cent, and, the open pit portion measured and indicated grades have increased 36 per cent.
