Archive for the ‘FINANCE INVESTMENT’ Category

China’s advance into Central Asia ruffles Russian feathers .Commerce & expansion

Sunday, January 3rd, 2016

Kazakh traders wait for their goods purchased from China to be cleared on the Kazakh side of the Horgos free-trade zone near Horgos, Kazakhstan image

Kazakh traders wait for their goods purchased from China to be cleared on the Kazakh side of the Horgos free-trade zone near Horgos, Kazakhstan. Photo: Washington Post

Shymkent, Kazakhstan:  Slowly but surely, a four-lane highway is beginning to take shape on the sparsely populated Central Asian steppe. Soviet-era cars, trucks and aging long-distance buses weave past modern yellow bulldozers, cranes and towering construction drills, labouring under Chinese supervision to build a road that could one day stretch from eastern Asia to Western Europe.

This small stretch of blacktop, running past potato fields, bare dun-colored rolling hills and fields of grazing cattle, is a symbol of China’s march westward, an advance into Central Asia that is steadily wresting the region from Russia’s embrace.

A Chinese surveyor climbs to take measurements at the site of a bridge project near Shymkent, Kazakhstan.image

A Chinese surveyor climbs to take measurements at the site of a bridge project near Shymkent, Kazakhstan. Photo: Washington Post

Here the oil and gas pipelines, as well as the main roads and the railway lines, always pointed north to the heart of the old Soviet Union. Today, those links are beginning to point toward China.

“This used to be Russia’s back yard”, said Raffaello Pantucci, director of International Security Studies at the Royal United Services Institute in London, “but it is increasingly coming into China’s thrall”.

It is a shift that has shaken up the Russian leadership, which is watching China’s advance across the steppe with little apprehension. Moscow and Beijing may speak the language of partnership these days, but Central Asia has emerged a source of wariness and mistrust.

Kazakhstan President Nursultan Nazarbayev with then Australian prime minister Julia Gillard image

Kazakhstan President Nursultan Nazarbayev with then Australian prime minister Julia Gillard. Photo: Andrew Meares

For China, the region offers rich natural resources, but Beijing’s grander commercial plans — to export its industrial overcapacity and find new markets for its goods — will struggle to find wings in these poor and sparsely populated lands.

In September 2013, Chinese President Xi Jinping chose Kazakhstan’s sparkling, modern new capital, Astana, to announce what has since become a cornerstone of his new, assertive foreign policy, a Silk Road Economic Belt that would revive ancient trading routes to bring new prosperity to a long-neglected but strategically important region at the heart of the Eurasian continent.

Bound together by 2000 years of exchanges dating to the Western Han Dynasty, sharing a 1800 kilometre border, the two nations, Xi said, now faced a “golden opportunity” to develop their economies and deepen their friendship.

Tenge currency notes and coins in Almaty, Kazakhstan image

Tenge currency notes and coins in Almaty, Kazakhstan. Photo: Bloomberg

At the China-Kazakhstan border, at a place known as Horgos to the Chinese and Khorgos to the Kazakhs, a massive concrete immigration and customs building is being completed to mark that friendship, rising from the windswept valley floor like a mammoth Communist-style spaceship.

A short distance away, China is building an almost entirely new city, apartment block by apartment block, alongside a 520 hectare free-trade zone, where traders sit in new multi-storey shopping malls hawking such items as iPhones and fur coats.

This is reputed to have been a seventh-century stop for Silk Road merchants. Today, the People’s Daily newspaper calls it “the pearl” on the Silk Road Economic Belt.

Traffic is seen on a section of the road, which will link China and Europe, near Shymkent, Kazakhstan image

Traffic is seen on a section of the road, which will link China and Europe, near Shymkent, Kazakhstan. Photo: Washington Post

But this pearl is distinctly lopsided: On the Kazakh side of the zone, opposite all those gleaming malls, a single small building, in the shape of a nomad’s tent or yurt, sits on an expanse of wasteland where a trickle of people stop to buy biscuits, vodka and camel’s milk.

The Silk Road slogan may be new, but many of its goals are not. Beijing has long been working to secure a share of the region’s rich natural resources to fuel China’s industrial economy; it is building a network of security cooperation in Central Asia as a bulwark against Islamic extremism that could leak into China’s restive western province of Xinjiang, and it wants to create alternative trading routes to Europe that bypass Asia’s narrow, congested shipping lanes.

Under the Silk Road plan, China also is promising to spend hundreds of millions of dollars to build new infrastructure here, and hopes to reap benefits of its own: to create new markets for Chinese goods, especially for heavy industries such as steel and cement that have suffered as the Chinese economy has slowed.

New_silk_road map image

But the scene at Horgos underlines the fact that the economies of China’s Central Asian neighbours are simply too small to provide much of a stimulus to China’s giant, slowing economy.

China’s ambitious Central Asian plans did not go down well, at least initially, in Moscow.

“When China announced its Silk Road plan in Kazakhstan, it was met with a lot of skepticism and even fear by the Russian leadership,” said Alexander Gabuyev, head of the Russia in the Asia Pacific Program at the Carnegie Moscow Centre. “The feeling was, ‘It’s a project to steal Central Asia from us, they want to exploit our economic difficulties to be really present in the region’. ”

Russia had long blocked China’s attempts to create an infrastructure development bank under the auspices of the Shanghai Cooperation Organisation, a regional body, fearing it would become a tool for Chinese economic expansion. Beijing responded by side-stepping Moscow, establishing an Asian Infrastructure Investment Bank in June with a $US100 billion ($137 billion) capital base.

China has overtaken Russia to become Central Asia’s biggest trade partner and lender. Pipelines transport increasing amounts of Kazakh oil to China and vast quantities of Turkmen gas east through Horgos. That has served to undermine Russia’s negotiating position when it has tried to sell its own gas to China.

At the same time, however, President Xi has worked overtime to calm Russian fears, reassuring his counterpart Vladimir Putin that Beijing has no plans to counter his country’s political and security dominance in Central Asia.

In 2014, Russia attempted to draw the region more closely into its embrace by establishing a Eurasian Economic Union, with Kazakhstan a founding member. But even as Moscow moved to protect its turf, the realisation was dawning that Russia lacked the financial resources to provide Central Asia the economic support it needed.

After the breakdown of relations with the West over Ukraine in 2014, and the imposition of sanctions, the dogmatic view that Russia had to be the top economic dog in Central Asia was questioned, and then finally, grudgingly abandoned.

It was impossible, Gabuyev said, so Russia’s leaders decided to divide the labour: Russia would provide security, while China would bring its financial muscle.

In May, Xi and Putin signed a treaty designed to balance the two nations’ interests in Central Asia, and integrate the Eurasian Economic Union and the Silk Road.

China’s expanding influence has provoked mixed feelings in many Asian states, has used “velvet gloves” in its dealings with Central Asia, said Nargis Kassenova, an international relations expert at KIMEP University in Almaty.

About a quarter of Kazakhstan’s citizens are ethnic Russians, while Russian media dominate the airwaves. The Chinese language, by contrast, is nowhere to be seen or heard. Even India has more cultural resonance through Bollywood films, says political scientist Dossym Satpayev in Almaty.

What Beijing can offer is infrastructure loans and investment. It has been careful to frame its plans as more than just a “road” — where Kazakhstan’s natural resources are extracted, and Chinese goods waved through on their way to Europe – but as a “belt” of economic prosperity.

Nevertheless, a survey conducted by independent analyst Elena Sadovskaya found that Kazakh attitudes toward Chinese migrant workers reflect fears that China would one day dominate the country, swamp it with immigrants and cheap goods, grab land or simply suck out its natural resources while giving little in return. “In 2030, we’ll all wake up and find ourselves speaking Chinese,” is one common saying here.

In July, scores of people were injured when a mass brawl broke out between Chinese and local workers at a copper mine near the northern Kazakh city of Aktogay.

Kazakhstan’s Foreign Minister Erlan Idrissov plays down concerns. China may outnumber the 17 million Kazakh population by 80 to one, but its progress and development is good news, he says.

“Our philosophy is simple: We should get on board that train,” he said in an interview in Astana. “We want to benefit from the growth of China and we don’t see any risks to us in that growth.”

China’s state-owned investment giant CITIC runs an oil field and an asphalt factory in Kazakhstan, and says it has established a $US110 billion fund to invest in Silk Road projects, much of the money aimed at Kazakhstan and Central Asia.

But private Chinese companies and ordinary Chinese traders say they have yet to reap the rewards, as the small Kazakh economy is shrinking under the weight of falling commodity prices and Russia’s economic decline.

Meanwhile Russia is playing interference, they say, imposing new import restrictions under the Eurasian Economic Union in an apparent attempt to keep Chinese goods from flooding the region.

In Almaty, the Yema Group has been importing Chinese bulldozers, diggers and other heavy equipment for more than a decade. Business, once booming, has collapsed in the past two years, as many Chinese vehicles fail to meet tough Russian certification standards that now apply throughout the economic union.

Shi Hairu, a 52-year-old trader from Shanghai, who sells Chinese gloves in a small shop in a market in Almaty, arrived two years ago when the economy at home started to slow. But sales have been halved this year – a sharp depreciation in the Kazakh currency, the tenge, has drastically reduced locals’ purchasing power, while customs clearance has become slower and costlier.

In the Horgos free-trade zone, Chinese traders also say business is poor. Many were lured here by tax breaks and cut price deals to rent shops, and by enthusiastic cheer-leading by state media about the opportunities on offer.

“After we came here, we realised it was all lies,” said one owner of a shop that sells women’s underwear who declined to be named for fear of trouble with the authorities.”We basically got deceived into coming here.”

The Kazakh government is building a “dry port” at Khorgos — with warehouses, an industrial park and rows of cranes to transfer containers across different railroad gauges — in what it hopes will become a major distribution and trans-shipment hub for goods bound between China and Western Europe, a “mini-Dubai” in the making. But the nearby free-trade zone still boasts just the one small supermarket, guarded by four lonely concrete camels, plastic flowers in their saddlebags. The nearest Kazakh city, Almaty, is a five-hour drive away along a bone-jarring road.

Yang Shu, director of the Institute of Central Asian Studies at Lanzhou University, calls Horgos “a mistake,” because so few people are in its vicinity. Trade between the two nations declined 40 percent in the first six months of this year, to $US5.4 billion, just a quarter of 1 percent of China’s global trade.

Nevertheless, experts agree that China’s Silk Road plan has immeasurably more clout than the American New Silk Road plan advanced by then-Secretary of State Hillary Rodham Clinton in 2011 that was meant to bind Afghanistan to Central Asia but barely got off the ground, or Russia’s own pivot to Asia, mired in economic woes and bureaucratic inertia.

For now, Pantucci, at the Royal United Services Institute, said China and Russia have established some sort of “modus vivendi” here. “I used to believe Central Asia would become a bone of contention between the two countries, but the priority in Moscow and Beijing remains the broader strategic relationship,” he said. “Wrinkles like disagreements in Central Asia will get swept underfoot.”

But Tom Miller, at a consulting firm called Gavekal Dragonomics, argues that as Beijing’s investment and financial ties with Central Asia deepen, “its political influence will inevitably strengthen”, too. Harking back to the Great Game, the 19th-century contest between the British and Russian empires influence in Central Asia, he says there is only one winner this time around.

Beijing’s strategists studiously avoid any talk of playing a new Great Game in the heart of Asia – “but they look set to win it nonetheless,” Miller said.

Washington Post


Henry Sapiecha

U.S. Senate reveals major banks had‘unfair advantage’ in global commodities business

Friday, November 21st, 2014

u-s-senate-reveals-top-banks-unfair-advantage-in-physical-commodities-business image wall st sign

A two-year probe into U.S. Senate-led into Wall Street’s top three banks’ involvement in physical commodities has concluded they exposed themselves to catastrophic financial risks, environmental disasters and potential market manipulation by investing in oil, coal and power plants.

A report published by the Senate’s Permanent Subcommittee on Investigations say the heavy involvement of Goldman Sachs (NYSE:GS), JPMorgan Chase & Co. (NYSE:JPM) and Morgan Stanley (NYSE:MS) in the business of storing and moving commodities like oil, aluminum, uranium and copper also gives them unfair trading advantages in financial markets.

The 400-page report, which was made public on Wednesday evening, adds the lenders assumed a role of such significance in the commodities markets that it became possible for them to affect prices paid by consumers, while also securing inside information about the markets that could be used by their own traders.

Banks defend their businesses 

Bankers from Goldman Sachs and JPMorgan, along with other industry executives and regulators, will testify about the allegations at hearings today and Friday. According to the Wall Street Journal, they will address several questions, including “conditions at a Goldman-owned coal mine in Colombia and the airline fuel arrangements that Morgan Stanley struck with United Airlines.”

The lenders assumed a role of such significance in the commodities markets that it became possible for them to affect prices paid by consumers, while also securing inside information about the markets that could be used by their own traders

The subcommittee also studied over 30 power plants owned by JPMorgan, as well as its copper activities and trades.

Last year, JPMorgan had to pay a $410m penalty to settle with the Federal Energy Regulatory Commission, which accused the bank of manipulating energy markets at the expense of consumers.

You can read the full report here.  Charts and exhibits can be found here.

Henry Sapiecha


Wednesday, July 9th, 2014


Once the darling of mining investors venturing in Latin America, world’s top copper producer Chile is becoming one of the most expensive countries to explore and mine.

While less costly than Mexico, the cost of producing a pound of copper went —according to data from the country’s copper commission—from US$0.63 per pound in 2004, which was half of Africa and well below the world average at the time, to US$2.50 last year.  It means it now costs about 3.5 times more (350%) to produce a pound of the red metal in Chile, compared to a decade ago, and the figure is also higher than global average of $2.38 per pound registered last year.

The same study shows that only two mining jurisdictions last year were more expensive than Chile: Europe and Asia.

The same study shows that only two mining jurisdictions last year were more expensive than Chile: Europe and Asia.

Between 2004 and 2013, production costs in Chile — measured in dollars per year— went up by 295%, representing an annual average of 30%. Measured in dollar value for 2012, cost jumped by 186%. In comparison, global average production cost increase went up by 267%.

The problem of rising costs is not limited to Chile; it is a trend affecting the mining industry worldwide.


However, the South American country is also struggling with high cost of energy, which threatens the competitiveness of the country’s copper industry and poses a major challenge for new developments.

Electricity costs in Latin America’s wealthiest economy have climbed 11% per year since 2000, making it one of the most expensive places in the world to secure energy for mining projects.

And while the nation has the world’s richest reserves of copper, grades are falling at its massive but aging copper mines, making it difficult to maintain output and putting pressure on costs.

High wages don’t help the situation. Chilean mine workers produce less than half of their North American counterparts, while getting paid more, told Bloomberg in April Peter Beaven, BHP Billiton (ASX:BHP) base metals head in the country.

Chilean mines’ production costs could come down, however, if miners scale back planned expansions because of falling copper prices and energy suppliers are forced to offer more competitive prices.

Henry Sapiecha


Monday, April 15th, 2013

Commodity traders’ $250bn harvest

Net income of largest trading houses since 2003 surpasses that of combination of the biggest Wall Street banks or that of an industrial giant like GE

Fantasy Footwear

Henry Sapiecha



Tuesday, November 6th, 2012



Canada’s economy shrank 0.1% in August, the first drop in six months, driven mainly by depressed manufacturing and energy sectors, Statistics Canada said Wednesday.

Hardest hit were mining and oil extraction operators, with the sector shrinking 0.7% Excluding oil and gas extraction, mining fell 2.8%. Metal ore mining declined 4.7% as a result of decreased output at copper, nickel, lead and zinc mines as well as at gold and silver ore mines.

Statistics Canada said scheduled maintenance affected metal ore output in August, while non-metallic mineral production fell 2.6% as a result of decreases in output at potash mines.

Oil and gas extraction declined 0.4%, as a drop in crude petroleum production outweighed an increase in natural gas extraction. Maintenance activities at some oilfields affected crude petroleum output in August, the statistics agency said.

Overall, StatsCan noted shrinking output in 10 out of 18 industrial sectors.

Sourced & published by Henry Sapiecha


Wednesday, November 2nd, 2011

Nearly all of non-Chinese rare earth projects

will fail, says Jack Lifton

Andrew Topf

Consultants in the mining industry  say that the high processing costs and level of expertise required in bringing rare earth mines into production means most of them will eventually fail. In an interview with Reuters, Jack Lifton, founder of Technology Metals Research, said of the 244 companies hoping to extract REEs, less than 4% will be profitable: “The choke point for all the companies is the question of what they can do with the concentrated REM ore once it’s above ground. You can extract the rare earths together, but then you have to separate them…the world’s REM separation capacity is 99 percent Chinese and they have unused capacity,” Lifton said. “The Chinese overwhelmingly control this and that is the key to the rare earth industry. Without separation capacity, all you have is a loss-making ore concentrate company.”

Sourced &n published from mining journals by Henry Saoiecha


Wednesday, October 19th, 2011

Various articles on commodities from mining magazine

$25 million spent in Albania by Tirex Resources going a long way

Receives unanimous community support for mining permit applicationsSubmits all required mining application documentation

New Gold goes all-in at Blackwater

Vancouver – New Gold (NGD-T, NGD-N) has put pen to paper with two B.C.-focused junior gold explorers holding land near the company’s most recent acquisition, the Blackwater gold-silver project, located 150 km southwest of Prince George.

La Ronge Gold Corp Announces a Private Placement

VANCOUVER, BRITISH COLUMBIA–(Marketwire – Oct. 18, 2011) – La Ronge Gold Corp. – (TSX VENTURE:LAR) (the “Company”) announces it will undertake a private placement (the “Placement”) consisting of 1,600,000 flow-through units (the “FT Units…

Pebble to challenge borough ordinance in Alaska Superior Court

VANCOUVER, Oct. 18, 2011 /PRNewswire/ – By a narrow 280 – 246 (53 – 47%) margin, voters in Southwest Alaska’s Lake & Peninsula Borough have supported a ballot measure that, if upheld by the courts, would restrict future development that affects more than one square mile of land within the 31,000 square mile borough. The Pebble Limited Partnership (the “Pebble Partnership” or “PLP”) and the State of Alaska view the initiative sponsored by anti-Pebble activists as unconstitutional and unenforceable because it seeks to restrict development of state-owned resources on state lands through a municipal ordinance, and will challenge it in Alaska’s Superior Court.

Northern Vertex announces $12.65 million non-brokered private financing

VANCOUVER, Oct. 18, 2011 /CNW/ – Northern Vertex Capital Inc. (TSXV: NEE) (“Northern Vertex”) is pleased to announce a Non-Brokered private placement (the “Private

Alaska voters say no to gold, copper mine 1:58 am APNews

Voters of a small southwest Alaska borough narrowly passed a measure blocking a proposed gold and copper mine that conservationists said would have threatened one of the world’s premier wild salmon fisheries in a local election that gained national…

Barkerville Gold Mines intercepts 21.5 meters (70.5 feet) of 9.97 g/T (0.291 oz/t) gold including 2.8 meters (9.2 feet) of 52.0 g/T (1.516 oz/t) gold on Cow Mountain

Further to the news releases on the high grade VG-cosalite-quartz-pyrite zones discovered by the Company on Cow Mt. reported by the company respectively on June 27, July 26 and September 13, Barkerville Gold Mines Ltd. (TSX VENTURE:BGM)(FRANKFURT:IWUB) (the “Company”) reports the more significant intercepts of drill results conducted on Cow Mt. recently.

Greens tying up Olympic Dam with new parliamentary inquiry, $30 billion project faces delays

News reports from Australia say BHP Billiton may face delays in getting approvals for its $30 billion Olympic Dam expansion, as Greens and other minor parties holding the balance of power in the South Australian Parliament push for an inquiry into the project. The legal agreement between BHP and the State Government will be introduced to parliament on Tuesday or Wednesday, but the Greens now want BHP Billiton officials to appear before a parliamentary committee to investigate the indenture legislation for the expansion. The project will create an open pit mine adjacent to the current Olympic Dam underground operation that would be the world’s biggest – trucks will haul overburden 24/7 for five to six years just to reach the ore body.

Sourced & published by Henry Sapiecha


Sunday, May 1st, 2011


OLI GIExxon earned nearly $US11 billion ($A10.15 billion) in the first quarter, a performance likely to land it in the centre of the national debate over high gasoline prices.

The world’s largest publicly traded company on Thursday reported net income of $US10.65 billion ($A9.83 billion), or $US2.14 per share, in the first three months of the year. That compares with $US6.3 billion ($A5.81 billion), or $US1.33 per share a year ago. Revenue increased 26 per cent to $US114 billion ($A105.2 billion).

The results surpassed Wall Street estimates of $US2.04 per share on sales of $US112.6 billion ($A103.91 billion), according to FactSet.

The quarter was Exxon’s best since it earned a record $US14.83 billion ($A13.69 billion) in 2008’s third quarter. It comes at a time when some drivers are paying $US4 or more for gas and President Obama is threatening the oil industry’s multibillion-dollar tax subsidies.

Earnings grew across the company’s business segments. Income from its exploration and production business gained 49 per cent to $US8.7 billion ($A8.03 billion) while the company’s downstream business, which includes refineries, posted a huge 30-fold jump to more than $US1.1 billion ($A1.02 billion).

Anticipating a strong reaction to the results from drivers and politicians, Exxon said on a company blog on Wednesday that it has little control over the price of oil, which has risen to near $US113 per barrel. The company also noted that less than 3 cents of every dollar it earns comes from the sale of gasoline and diesel fuel.

That may not appease many motorists, however. The national average for a gallon of gas is $US3.89, about $US1.02 more than a year ago. It’s above $US4 in 8 states and the District of Columbia. And on Thursday, the Commerce Department said economic growth slowed sharply in the first quarter, partly because of high gas prices.

On the blog, Ken Cohen, Exxon’s vice president of public and government affairs, said the company was anticipating “the inevitable headlines and sound bites about high gasoline prices and what to do about them” after the earnings were reported.

Exxon’s huge profit followed similar results by other oil companies.

Europe’s largest oil company, Royal Dutch Shell PLC, reported $US8.78 billion ($A8.1 billion) in first-quarter profits, up 60 per cent from a year ago. BP PLC’s quarterly earnings rose 16 per cent to $US7.2 billion ($A6.64 billion). ConocoPhillips said net income grew 43 per cent to $US3 billion ($A2.77 billion) and Occidental Petroleum Corp said earnings climbed 46 per cent to $US1.55 billion ($A1.43 billion).

Exxon Mobil Corp increased earnings even though it produced less oil and natural gas liquids. Benchmark crude prices rose 20 per cent from a year ago.

The company has increasingly focused on producing natural gas. Exxon expects natural gas to displace coal as the second most important fuel source within the next decade, and last year it acquired XTO Energy to become the largest US natural gas producer.

Natural gas production increased 24 per cent in the quarter for Exxon, but prices declined as other companies followed Exxon’s lead and rushed to develop underground shale gas deposits in North America. Natural gas prices fell nearly 16 per cent from a year ago.

AP   Sourced & published by Henry Sapiecha


Wednesday, March 2nd, 2011

Booming WA economy

sends surplus soaring

through the $1bn mark

March 1, 2011
WA mining towns have become the place to buy property ... again.WA’s mining boom is raking in the money for the state government.

Western Australia’s burgeoning mining royalties have continued to strengthen the state’s economy, with the government sector recording a $1.1 billion surplus for the first half of the financial year.

The operating surplus of $1.1 billion for the first six months of 2010/11 is a huge turnaround from the $259 million operating deficit for the first half of 2009/10.

Treasurer Christian Porter said the WA Quarterly Financial Results report showed the state reaped nearly $12.3 billion worth of revenue for the first half of 2010/11.

That is up by $2.1 billion on the same period last financial year.

“The main driver of this increase was a rise of $964 million in mining royalties, partly due to the state government’s successful negotiations to remove the royalty concession on iron ore production,” Mr Porter said.

Increased taxes added an extra $509 million to revenue as well as the one-off payment of $350 million by BHP Billiton and Rio Tinto resulting from changes to the State Agreement Acts.

The report revealed that the property and retail sectors remained subdued in the first half of 2010/11, resulting in lower stamp and other transfer duties, which were down $89 million.

General government sector expenditure was also up $761 million, blowing out by 7.3 per cent because of higher grants spending and the government’s one-off payroll tax rebate.

However, Mr Porter said the December result showed that public sector salaries grew by only 4.9 per cent and reflected the government’s effort to rein in spending.

Public sector net debt also rose by $446 million in the first six months of 2010/11, in line with planned spending on major infrastructure.

Spending on public infrastructure was up $338 million from the same period in 2009/10 due to construction on the Southern Seawater desalination plant, Fiona Stanley Hospital and other health infrastructure projects.

Sourced & published by Henry Sapiecha


Monday, January 17th, 2011

Santos Commits to $16 Billion

Queensland LNG Project

January 13, 2011, 12:49 AM EST

More From Businessweek

Jan. 13 (Bloomberg) — Santos Ltd., Australia’s third- largest oil producer, has committed to building a $16 billion liquefied natural gas project, helping the Queensland state economy recover from “devastating” floods.

Santos and partners Total SA, Petroliam Nasional Bhd. and Korea Gas Corp. will develop a venture at Gladstone that’s expected to produce 7.8 million metric tons of LNG a year and create 5,000 construction jobs, the Adelaide-based company said in a statement today. The site is about 550 kilometers (340 miles) north of the state capital Brisbane, which is experiencing its worst floods since 1974.

“These floods will have a lasting personal, environmental and economic impact on Queensland,” Santos Chief Executive Officer David Knox said on a call with reporters. “This project will be helping Queensland to get back on its feet.”

The venture is one of four on the central Queensland coast planning to liquefy gas extracted from coal deposits for shipment to Asian clients. BG Group Plc, the U.K.’s third- largest gas producer, said on Oct. 31 that it would build the Queensland Curtis LNG development at a cost of $15 billion.

“It’s all down to project execution now,” said Benjamin Wilson, an analyst at JPMorgan Chase & Co. in Sydney. Because of competition for labor, it’s important to approve engineering and construction contracts “as quickly as possible.”

Costs, Jobs

Santos rose after the announcement, advancing 2.2 percent to A$13.45 at the 4:10 p.m. close in Sydney, the most in more than three weeks, compared with a gain of 1.5 percent for the benchmark S&P/ASX 200 Index.

The oil and gas explorer has said it is signing contracts for the development of the project at fixed prices to reduce the risk that labor shortages will drive costs higher. Santos has awarded work to Bechtel Corp., Saipem SpA and Fluor Corp.

BG has said its venture is expected to generate 5,000 construction jobs during the next four years. BG’s project will have two processing units with a combined capacity of 8.5 million tons of LNG a year.

Santos anticipates 1,500 jobs from the project in the first half of this year and that construction will gradually “ramp up” before peaking in 2013, Knox said. The Australian company will own 30 percent of the project, while Kuala Lumpur-based Petroliam Nasional, or Petronas, and Paris-based Total will each own 27.5 percent. Korea Gas will have 15 percent.

Rebuilding After Floods

“Proceeding now with projects like this will be a tremendous boost to the Queensland economy as we recover from the devastating impact of the floods,” state Premier Anna Bligh said in the Santos statement.

The venture aims to begin exports in 2015, generating an average of $6 billion in annual revenue and has combined supply agreements worth more than $120 billion, Santos said last month.

“This project and economic development more generally is important in underpinning the skills, tax revenue, wealth and capacity to respond and rebuild in the aftermath of the current flood crisis in Queensland,” Australian Energy Minister Martin Ferguson said in the statement.

ConocoPhillips and Origin Energy Ltd. plan a rival coal- seam gas-to-LNG venture in Queensland targeting rising Asian demand for cleaner-burning alternatives to coal. Arrow Energy, acquired last year by Royal Dutch Shell Plc and PetroChina Co., proposes a fourth LNG project in the state.

Gorgon LNG

Santos is feeding its project with gas resources from the Bowen and Surat Basins in southeast Queensland and building a 420-kilometre pipeline to Gladstone. The floods aren’t expected to cause any delays to the development schedule, Knox said.

Santos has “plenty of reserves available to us” to support two LNG processing units, or trains, at the Gladstone site, Knox said on the call.

The Santos-led venture will have more than half the capacity of the A$43 billion Gorgon LNG project that Chevron Corp. and partners Exxon Mobil Corp. and Shell are building in Western Australia. The country’s largest resources development is due to begin LNG exports in 2014 from a three-unit, 15 million ton-a-year facility and may add a fourth and perhaps a fifth processing unit.

LNG is natural gas that has been chilled to liquid form, reducing it to one-six-hundredth of its original volume at minus 161 degrees Celsius (minus 259 Fahrenheit), for transportation by ship to destinations not connected by pipeline. On arrival, it’s converted back into gas for distribution to power plants, factories and households.

Sourced & published by Henry Sapiecha