Replies to post #328 on The Rising Influence of Rising Affluence

[DewDiligence]

Re: LNG/CSG projects

Hi, zebra, welcome to the board, and thanks for your list of off-the-beaten-track LNG investment ideas.

The main thing that worries my on the Australian LNG boom now is that at some point there could be big disappointment with the projects based on coal seam gas (CSG)… must be 5 or 6+ LNG projects in the works now in Queensland Australia based on CSG. Will take about 4000 to 5000 wells to feed each LNG plant. And the wells need to be dewatered to produce gas. So tons of water treatment and disposal issues. Plus huge gathering systems to build and maintain. And CSG is lean, dry gas. No nice gas liquids to help the economics.

Despite these drawbacks, COP (one of the energy holdings in the institutional portfolio I advise) is into CSG in a big way via a JV with Australia’s Origen Energy:

http://www.originenergy.com.au/news/article/asxmedia-releases/970

According to a recent webcast, COP considers this JV one of its 4 or 5 most promising global projects of any kind, with initial LNG sales expected in 2014.

My favorite LNG company is IOC. They have an on-land project in Papua New Guinea with probably a 10 TCf resource. Much cheaper to develop than these offshore projects. Did a bit of consulting work on one of the Australian offshore projects two years ago, and was appalled at the costs involved.

On the other hand, offshore projects such as Gorgon typically have lower environmental risks insofar as there is no one living next door to spearhead a political backlash. The on-shore experience in Nigeria has made this a non-trivial concern, IMO, even in “First World” countries such as Australia. Regards, Dew

[DewDiligence]

NR Companies in Australia Have a Problem: Not Enough Workers

http://online.wsj.com/article/SB125349203416326549.html

›SEPTEMBER 21, 2009
By CYNTHIA KOONS

Many Australian companies are facing a problem that firms in most other advanced economies emerging from the downturn might envy -- a lack of workers for all the jobs being created.

A rebound in the mining and energy sectors thanks to a quicker-than-expected recovery in demand from China and elsewhere for Australia's commodity exports means that recruiting a work force, rather than finding work, is the overarching problem for companies in these sectors.

Adding to the skilled-worker shortage are Australian federal government promises to spend 84 billion Australian dollars (US$73 billion) on infrastructure ranging from new school halls to city transport links and a new broadband network.

Australia's resurgent resources boom requires a plethora of skilled workers from engineers to welders, riggers and drillers. The country has only a fraction of the people needed, forcing employers to recruit around the world. Even amid the downturn, demand for workers has remained strong, particularly in remote areas where the shortage is acute, boosting pressure on wages. Workers in the mining industry earn, on average, more than those in any other industry in Australia, including health care and financial services.

The problem has attracted less attention over the past year as the financial crisis initially slowed development of infrastructure and new mines, but latest data indicate the problem is returning. A government measure of skilled-job vacancies rose 1% in August from July, the first monthly rise since November 2007.

"One of the real challenges in Australia is continuing to get a really high-quality, high-skilled labor force," Santos Ltd. CEO David Knox said. Santos will soon make a decision on one major liquefied-natural-gas project and is planning at least two more at a time when energy giants Chevron Corp., Exxon Mobil Corp. and Royal Dutch Shell PLC this month agreed to undertake the A$43 billion Gorgon natural-gas project in Western Australia.

While Australia's labor force has weakened a little because of the global downturn, the jobless rate remains low compared with many other countries. Australia's economy had the fastest pace of growth among the world's advanced economies in the second quarter, expanding by 0.6% from the previous quarter.

Leighton Holdings Ltd. CEO Wal King said his construction company's order book is approaching a record A$40 billion, up from A$37 billion at the end of June. "I think everyone's probably surprised at how quickly things are appearing to spring back," he said.

Australia has a history of labor shortages. In 2005, the government planned fairs in London, Berlin, Amsterdam and Chennai, India, to attract skilled workers and tradespeople in what was considered its biggest recruitment drive since the 1960s.

As recently as April 2008, when the Australian Petroleum Production and Exploration Association, an oil-and-gas lobby group, set a target to triple the country's LNG output by 2017, Woodside Petroleum Ltd. CEO Don Voelte said the target "is not an aspiration, it is not even a dream, it is impossible." He was referring specifically to labor and equipment shortages.

The government this month set up a task force to explore strategies to help secure as many as 70,000 skilled workers needed for major resource-sector projects over the next decade. Peter Goode, CEO of Transfield Services, a global maintenance company, said government programs help but don't address his company's need for experienced workers. In the past, the government has looked to its immigration policies to address the issue.

Cost estimates for a clutch of the biggest LNG projects, including Gorgon, the nearby Pluto and Australia Pacific LNG in north-eastern Australia already total more than A$100 billion, an amount that is set to rise sharply as companies finalize plans for additional LNG plants or sign off on expansions of existing facilities.

Mr. Goode said as many as 100,000 additional workers may be needed. "I think there's going to be an acute labor shortage, and those operators who start to do their projects first will ... get the labor," he said. "I think those that delay are going to struggle."‹

[DewDiligence]

XOM Inks 20-Year LNG Deal With Sinopec

http://www.reuters.com/article/idAFPEK21007620091203

›Dec 3 2009

BEIJING, Dec 3 (Reuters) - China's Sinopec Corp <0386.HK> has struck its first deal to purchase liquefied natural gas, agreeing to buy 2 million tonnes per year for 20 years from ExxonMobil's Papua New Guinea project, Sinopec Group said on Thursday.

The gas will go to a planned LNG terminal at Qingdao in Shandong province, which will have an annual capacity of 3 million tonnes in its first phase, rising to 5-6 million tonnes a year in a later second phase, the state-owned parent company, Sinopec Group, said on its website www.sinopecgroup.com.cn.

It did not give a detailed agenda for the start-up of the Qingdao LNG terminal or say when the sales would begin.

Sinopec has planned the Qingdao terminal for several years but it had made little progress as it has not been able to secure LNG supplies, lagging behind rivals CNOOC <0883.HK> and PetroChina <0857.HK>, which already have three and two terminals respectively, at various states of development.

Sinopec also plans to build a terminal in the southern city of Zhuhai but has yet to get a green light from the government.

China is struggling to supply enough gas and suffered widespread shortages after unexpectedly heavy snows across the country last month. The shortages prompted the energy companies to cut supplies to industrial customers to ensure there was enough to cover residential needs.

China is pushing gas as a relatively clean fuel which will cause less pollution than coal. As well as building LNG terminals, it is rushing to increase its own supplies and plans to import gas via pipelines from Russia, Myanmar and Turkmenistan.

ExxonMobil and Sinopec Corp <600028.SS> reached a preliminary deal on the 2 million tonnes a year of LNG sales at the beginning of November.

ExxonMobil holds 41.5 percent of the shares in the LNG venture, while Australia's Oil Search Ltd <OSH.AX> and Santos Ltd <STO.AX> have 34 percent and 17.7 percent stakes respectively. Nippon Oil Corp <5001.T> and PNG landowners hold the remaining shares.‹