North Australia Digest – 10/12/2012

The Australian
Australian gas producers may have to settle for lower export prices due to the worldwide expansion of the gas production industry. Analysts have warned that some of Australia’s more costly projects in the $200 billion dollar liquefied natural gas pipeline were becoming “increasingly vulnerable” following a landmark deal between Kansai Electric Power and BP – the first contract in Japan to be linked to gas rather than oil prices. The news is a warning to Australian suppliers, who are already facing mounting cost pressures and are dependent on the profits made by selling gas to Japan.
Rio Tinto has cut the number of staff working at its regional headquarters in Melbourne as the company faces the challenge of increasing costs – which have been rising sharply in recent times: “Like others in the industry, Rio Tinto is facing the challenge of increasing costs,” a spokesman from the mining company said. This follows chief financial officer Guy Elliott’s recent pledge to investors that Riot Tinto would take every opportunity to achieve $5 billion in savings: “I think we are going to find that the escalation of costs that we have seen well above the rate of inlation in most countries, and in particular in Australia, is going to have to stop,” he said.
Archer Daniels Midland’s takeover of GrainCorp could be significantly delayed by the involvement of the Chinese Ministry of Commerce, who are taking interest as GrainCorp has an edible oils facility in China.
A leading mining chief executive and a prominent fund manager have criticised Australia’s resources industry, saying it has painted an overly positive picture of the mining boom and subsequently misled investors about high production costs. “It’s not in the company’s interests to paint a rosy picture,” said Ms Raw, a fund manager helping to manage assets investments in Australian mining stocks.
Atlas Iron boss Ken Brinsden says he believed people were still too hopeful about the potential expansion of the seaborne iron ore trade. He also expressed a positive view on China’s demand for iron ore, stating they have not seen a material change in the behaviour of its customers.
The Australian Financial Review
A scorecard developed by the Energy Supply Association of Australia shows Queensland is lagging behind other states on electricity markets reform. On a rating out of 20, Queensland scores only 6.5. Despite this, the scorecard is also encouraged by the Newman government’s 30-year energy plan, stating it is “an excellent opportunity to revitalise the reform process.”
Minister for Regional Development and the Arts Simon Crean will use a week-long China visit to celebrate the 40th anniversary of diplomatic relations between the two countries, hoping to restore confidence in Australia as receptive to foreign investment: “We need to reassure them that we are open to foreign direct investment,” he said.
Treasure Wayne Swan will spend two days in India this week in an attempt to bolster economic and diplomatic ties with the world’s third-largest economy. Mr Swan said that India was “critical” to the long-term prospects of the Asian region, and was part of the shift in economic relationships from the West to the East.
Head of GE’s new global mining business Geoff Knox said the mining industry’s focus on increasing productivity levels is overtaking growth as the main driver for capital spending. Although this commitment has changed capital spending patterns, Knox said the boom was far from over: “Our customers are looking for more productive solutions and more efficient solutions as they get their productivity to world-class levels and as they get their cost bases down,” Mr Knox said.
America’s shale gas boom will see the American liquefied natural gas export industry build up slowly, and will only see a relatively small proportion of US shale gas find its way into the global market. Unconventional gas can transform energy markets by putting downward pressure on prices – there are good reasons for Australian producers to be watchful of the US boom.
Additionally, the Financial Review reports on how Australia’s shale gas resources have extraordinary potential in terms of jobs and energy security. Geoscience Australia estimated last year that there may be 258,900 petajoules of additional coal-seam gas, 435,600 PJ of shale gas and 22,000 PJ of tight gas in the country compared to Australia’s conventional gas resources, which total 184,000 PJ.
The West Australian
The West Australian also reports on the Energy Supply Association of Australia’s annual scorecard, this time focusing on Western Australia’s electricity performance. The report says the state is falling behind the rest of the country and more needs to be done to increase prices to a level that reflects the cost of producing power. “The major challenge for Western Australia is to remove the heavy hand of State Government interference from the operation of its energy market,” the report says.