“[A]s the federal government and opposition squabbled over who could claim responsibility for the record trade deal,” Australian Financial Review (page 7)
Dontcha just love ‘em!
But while the schoolboys and girls in Canberra and Perth argue over who can claim credit for the deal, we’ll see if we can help them out.
We wonder if it’s crossed their mind that it’s actually Chevron, ExxonMobil and Shell who should take the credit. After all, it is they who will be forking out $65 billion to develop the project.
That’s right, beneath the big headline about China paying Australia for $50 billion worth of gas, it’s been less reported what the development costs for the project are.
The capture and storage of CO2 alone will cost around $400 million over the life of the project.
These are big numbers we’re talking about here.
Big numbers that are only possible because three private sector oil and gas exploration companies have stuck shareholders money on the line to take a risk on the project paying off.
As any investor will know, not all exploration projects pay off. We don’t need to labour the point there. The fact is more fail than are successful.
But that’s part of the risk/reward in the resources sector. And even before these three companies have received a single dollar in revenue from China they’ve already forked out millions and millions of dollars to get this far.
Look, the natural gas and LNG industry is something your editor has been keeping a close eye on over the past year. You’ve probably seen it mentioned once or twice in these daily emails!
It’s led us to picking out three diverse stocks for Australian Small Cap Investigator that should give subscribers maximum exposure to the future growth in this industry.
Already these positions are up 242%, 243% and 114%.
It puts the 30% gain in the ASX/S&P200 index into context.
But don’t think that’s as much as they’ve got. Remember, these are stocks we tipped when the market was at its most bearish. They had maximum downside risk built into them.
Much of the gains achieved so far can be put down to a reduction in the risk of the companies, and an increase in the risk investors are prepared to take.
That means there’s still plenty of further gains in these three stocks.
Of course, when a $50 billion deal like this starts grabbing the headlines in the mainstream press it does make you take stock. It does make you wonder whether there’s any substance to the hype.
I mean, remember the uranium hype from a few years back? Resources companies were spinning off uranium assets left, right and centre in order to raise cash. In many cases these ‘new’ companies just held exploration permits and nothing else.
They soared on the hype and then crumbled on the fact.
Let me tell you why the LNG and natural gas story has much more substance to it…
Here’s something that might surprise you. The story isn’t just about China. It’s much, much bigger than that.
China gets the headlines, and we write a lot about China both here and in Australian Small Cap Investigator. But the reality is that natural gas is also a Japan story. It’s also a USA story. And it’s a South East Asia story too.
And just as importantly, it’s a viable ‘green’ story.
Look, whether you believe in the idea of climate change or global warming or anything else, it doesn’t matter. Because the politicians in power have decided there are more votes in being ‘green’ than in not being ‘green.’
Of course, that comes with conditions. They know there’s a lot of money riding on the resources industry. For instance, estimates are that the government will reap around $40 billion from the Gorgon project.
That means, despite the push towards greener fuels, it won’t want to shut down the fossil fuel industry completely.
That’s where natural gas and LNG industries have been given a free kick.
In direct comparison, natural gas is a much cleaner fuel than oil or coal. Take a look at this table from the Energy Information Agency (EIA):
That’s a significant difference. And it will make a bigger difference as natural gas begins to replace coal and oil as the premium fossil fuel energy source.
Of course, things aren’t always that simple. For instance, in pure environmental terms, natural gas production still involves huge pipelines thousands of kilometres in length across the natural environment.
It still requires land to be cleared for LNG facilities and rivers to be dredged so the tankers can access the ports.
And it still involves the transportation and distribution of the fuel overseas, which uses more energy. So plenty of people have argued that the net difference from an environmental perspective is much less than the figures suggest.
But the fact is, from an investing standpoint that doesn’t matter. LNG and natural gas are already proven and viable industries. It is a commodity in demand and Australia has a huge and still untapped supply.
It’s why we jumped on the LNG bandwagon so early. The potential looked good then, and it looks even better now.
We’ll continue to follow this story and further developments here and in Australian Small Cap Investigator.
Other Stuff on the Markets
Yesterday’s “Other Stuff on the Markets” contained a few errors yesterday. Actually, the whole section was wrong.
Your inept editor had committed the critical mistake of not “saving” before we sent it off to our web boffins for distribution.
This morning we’ve checked and double-checked…
The S&P/ASX200 fell 0.18% yesterday, while there was better news overnight on Wall Street with the Dow Jones Industrial Average adding 61 points. In Europe the FTSE100 gained 0.08% and the CAC40 slipped 0.01%.
The price of gold in Australian dollars is trading at $1,139.08, while in US Dollars it’s trading at $944.08.
The Aussie dollar versus the US dollar and Japanese Yen is trading at USD$0.8285, and JPY78.05.
Further strength for Crude oil overnight, closing at USD$72.38.
For the biggest movers on the market yesterday click here…
