Here Come the Aussies

Source:

"Don't look now, but the order is about to see a new global leader: Australia! Projections now put the country on schedule to displace Qatar as the world's major LNG exporter."

Peter Coleman is 52 years old, but his baby face makes him look years younger.

You should not let that fool you. Among other things, this savvy Aussie oil and gas executive is also a Western Australia Football Commissioner.

You know, that unique sport where you get to run up the score into triple digits while kicking your opponent in the teeth.

These days, Peter is in the middle of a major shift in the global liquefied natural gas (LNG) pecking order. Don't look now, but the order is about to see a new global leader… Australia!

Prior to this point, market observers had usually considered the country to be a fringe player in the global oil and gas trade.

That 's about to change.

Projections now put the country on schedule to displace Qatar as the major LNG exporter worldwide. Rising from nothing at the beginning of this decade, the country will be exporting at least 80 million tons of gas each year by 2020.

I first met Peter three years ago when he was still vice president for Asia and the Pacific at global oil and gas giant ExxonMobil Corp. (NYSE: XOM). At the time, I was consulting on the massive Gorgon offshore natural gas project north of Perth on the Australian west coast.

Gorgon is led by Chevron Corp. (NYSE: CVX) and involves what, at the time, was one of the first subsea gas gathering infrastructure networks ever attempted on a system of fields this size.

(By the way, they are still finding gas in this region).

Gorgon is Chevron's largest project worldwide, but it is only one of three major projects in that part of Australia. All three are priming up to move LNG into the global market.

Initially, there was significant concern that the combination of projects would end up flooding the Asian market with gas, and end up driving down the price. Chevron has 47% of the Gorgon operation, but the project also includes majors Exxon and Royal Dutch/Shell (NYSE: RDS-A), along with three Japanese end users as minority participants.

And that was the potential downside.

Exxon has its own project in Papua New Guinea also coming on line. The other two main Gorgon partners worried Exxon would lock up long-term Japanese LNG end- user contracts, squeezing out Gorgon along with the other two northwest Australian projects.

Peter played his cards close to chest in those days, and you could never read his face very easily. His words are always measured, leaving you with the distinct impression that the other shoe is about to drop.

You also come away with the feeling he is providing only what he thinks you already know.

Well, all that angst ended when China announced it was building five new coastal LNG receiving facilities simultaneously. The result has been nothing short of staggering. All of the projected volume from all of the Australian and New Guinean projects is now tied up in 15- to 20-year delivery contracts.

One of the central Australian players in all of this is Woodside Petroleum – trading primarily on the Australian Stock Exchange (ASX) but available in a thinly-traded U.S. market pink sheet issue – OTC: WOPEY.

And that is where Peter comes back in.

For the past year, he has been CEO of Woodside.

Woodside has been paring its stakes somewhat in gas production projects, but it has just begun exporting from its huge $14.7 billion Pluto LNG terminal. The first consignment went off to Japan late last month. That facility will be moving at least 4.3 million tons a year with an expansion possible.

The Pluto and Xena projects remain under the control of Woodbine. But the company also believes that other gas producers will satisfy additional export capacity beyond Woodbine's production levels .

Asia remains the single greatest consumer market (until the international boon began a few years ago, more than 70% of all LNG in the world was sold either to Japan or South Korea).

Still the competition will be increasing from Russian and U.S.-based production, and the question is whether the market can sustain the rapidly accelerating volume becoming available.

That just happened to be one of the main topics Peter discussed yesterday (May 20) in an interview with Wall Street Asia's David Winning.

In the process, another "ringer" was introduced.

It seems that Australia has significantly more shale gas than originally thought. It remains too early to estimate how much of this will find its way onto the market, or the time it will take to construct the necessary infrastructure, develop the field systems, extract, and process the gas.

In the interview, Peter was again quite measured in his responses. While most would turn to the recent history in North America and point toward a similar result in Australia, Peter takes the more cautious approach – awaiting geological determinations of actual basin structures.

Nonetheless, whether the gas will be coming from abundance offshore or locked within rock onshore, one thing is becoming quite clear.

Australia is now a leading international force and market maker in the natural gas sector.

Sincerely,

Kent Moors

Oil & Energy Investor

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