The Australian Race for Energy

Australia is currently the fourth largest natural gas producer in the world. However, with more than 819 trillion cubic feet (Tcf) of gas reserves, many producers got interested in the potential that this country had to offer. Several LNG projects are either planned or under construction, and these projects could make Australia the world's largest producer by 2020.

Furthermore, in 2012, gas exports accounted for 21 million tonnes while oil and gas production totaled $29.4 billion in economic benefits, 2% of Australia's GDP. By 2020, the industry is expected to export approximately 85 million tonnes and contribute about $65 billion, or 3.5% of Australia's GDP. Let's see if the producers involved in this venture are getting the most of the large investments made since seven other large projects are currently at various stages of development.

A look back at the pioneer venturers
Australia's first LNG project goes back in 1980 when six major producers united to form the North West Shelf Venture (NWSV) with one-sixth of working interest each. Located about 783 miles North of Perth, and with capital expenditures of about $27 billion at the time, the project was commissioned in 1984 for domestic supply, followed in 1989 by the first shipment of LNG to Japan. The NWSV project, with reserves of about 30 Tcf of gas originally in-place, represents Australia's largest oil and gas resource development and currently accounts for more than 40% of Australia's oil and gas production.

Moreover, it has delivered more than 3,500 cargoes of LNG in the Asia Pacific region since 1989. As of today, NWSV includes five production trains and produces up to 16.3 million tonnes per annum. The project contributes $5 billion each year in taxation and royalties, and injects almost $600 million annually into the Australian economy.

BHP Billiton , a diversified mineral, oil, and gas producer, owns major producing assets in Australia, Africa, the U.K., and the U.S. For the quarter that ended in September 2013, BHP reported 62.7 Mmboe in production of petroleum for all its assets. Its NWSV share of production accounted for 1.87 Mmbbls of oil, 34.2 Bcf of natural gas and 399 Mboe of NGL for about 7.87 Mmboe of petroleum, thus representing 12.55% of BHP's total production.

The second partner, BP, mentioned production of 285.3 Mmboe for its third quarter results. Its NWSV production share of 7.87 Mmboe represented about 2.8% of its total production.The third partner in the joint-venture, Chevron , reported quarterly production of 233.1 Mmboe for the third quarter. Its one-sixth share in the NWSV project represented almost 3.4% of its total production for the quarter.

On its part, Royal Dutch Shell declared 263.7 Mmboe for Q3, a decrease of 2% over the same period last year. Its NWSV production share accounted for almost 3% of its total production for the quarter. Shell also participates in the development of the Gorgon and Wheatstone projects, as well as its wholly owned Prelude project, which adds strong value to the mix.

The fifth partner is no other than Australia's largest independent oil and gas company. Woodside Petroleum, in the business for more than 55 years, produces over 900,000 Boe/d. Notably, the producer operates six of the seven LNG processing trains in Australia and owns several assets around the world as well.

Finally, the last partner in the project is Japan Australia LNG, a company owned equally by Mitsubishi and Mitsui. The partnership was established in 1985 to manage principally its one-sixth interest in the NWSV project.

Still plenty of upsides in store
Notably, NWSV still offers a lot of potential upside. The redevelopment of North Rankin was approved in 2008 to build the necessary infrastructure to support new customer commitments and recover the remaining low pressure gas from producing fields. Allocated capex totaled $5 billion, and the upgrade's start-up is scheduled for the remainder of this year.

Furthermore, the participants also approved Phase 1 of the Greater Western Flank (GWF) project in December 2011 to develop 16 fields. This upgrade will be a significant catalyst for growth when start-up, expected for 2016, is completed. Notably, the area has been estimated to contain up to 3 Tcf of gas and 100 Mmbbls of condensate.

Bottom line
For more than 29 years, the NWSV project in Australia has proved to be a viable venture for the partnership. Since then, two other projects are operating in the area, Darwin LNG in 2006 and Pluto in April 2012. These successes attracted new players in the race for LNG exports. As a matter of fact, seven new LNG projects are planned to be commissioned in the next few years to develop the large Australian untapped resources.

Therefore, Australia is very well positioned to compete for LNG exports and reap the benefits. For the producers involved, it represent a huge opportunity to recover the abundant resources and profit from exports to nearby markets such as Japan, China, Korea, and India. Selling the commodity at three or four times the U.S. price is very appealing, thereby creating substantial cash flow in the process, which adds great value for its shareholders.

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