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Property Investment and the Resources revolution

Property investors will thrive in areas benefiting from LNG boom: Terry Ryder

By Terry Ryder
Tuesday, 18 September 2012

One reason the simplistic “mining boom is over” rhetoric is causing so much concern is that many people don’t understand what’s driving the resources sector. 

Essentially all that’s happened is that prices for iron ore and coal have fallen off their peak. In the overall context of the resources revolution, which will extend beyond my lifetime, this is a short-term phenomenon and will cause only a minor hiccup, just as the GFC was a small speed bump in the rise of the resources sector. 

Nevertheless, it has caused some miners to re-evaluate the timing of some projects. Each announcement of a downsizing or project deferral – and there have been relatively few – is seen as confirmation that the party is over. 

But the upsurge in investment in the Australian resources sector is not being driven by iron ore or coal, important though they are. The resources revolution is really about gas. 

The largest resources projects around Australia are all liquefied natural gas (LNG) enterprises. They dwarf anything happening in Western Australia’s iron ore industry or Queensland’s coal sector. 

Nine gas mega projects entail capital expenditure totaling $220 billion, and the general theme coming out of those ventures is expansion, not contraction. 

The $23 billion Australian Pacific LNG project – one of four giants focused on Gladstone – has its first train under construction and has just approved plans for a second train, having secured a 20-year supply contract with Japanese company Kansai Electric Power. 

The $34 billion Ichthys project, which will extract gas off WA but process it in Darwin, is moving forward, handing out some pretty big contracts in the Northern Territory capital. The $29 billion Wheatstone enterprise is doing likewise in WA. 

Three of the four LNG projects targeted on the Surat Basin (extraction) and Gladstone (processing and export) are well under construction and the fourth is advancing steadily towards a construction start in 2013-14. 

The four Gladstone ventures together involve around $70 billion in capital expenditure. 

The three mega gas projects in WA – Gorgon, Wheatstone and Browse – total around $106 billion. 

There is nothing remotely on this scale happening in coal or iron ore, the resources sector currently taking a hit from lower prices. 

This is why Australia is forecast to become the world’s biggest LNG producer within the next seven or eight years, overtaking Qatar, Indonesia and Malaysia. Australia has known reserves likely to last the next 100 years, and new discoveries are happening regularly. 

Australia now has seven of the world’s 10 largest LNG projects. Resources Minister Martin Ferguson said recently: “By 2017, based on proposed and committed new projects, Australia’s LNG production capacity is projected to quadruple.”

Apparently he momentarily forgot that minor point when he made his now-infamous statement on radio that the resources boom is over. 

The only non-gas Australian project in the league of the LNG ventures is the proposed expansion of Olympic Dam, which – contrary to the general media line – is not scrapped but is being re-worked to find less expensive ways to exploit the vast resource at Roxby Downs in South Australia. 

In real estate terms, the locations most likely to thrive from this ongoing upsurge in capital expenditure on LNG are Darwin, Gladstone, Karratha, Toowoomba and the towns of the Surat Basin, such as Dalby and Chinchilla.

Terry Ryder

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