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Alcoa Gets Energy Chill From Australia’s $130 Billion Gas Boom

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By Rebecca Keenan and Jason Scott

March 19 (Bloomberg) -- Australia is attracting more than $130 billion of investment in some of the world’s richest natural gas fields to supply buyers in Japan and China. Domestic customers, including Alcoa Inc., will have to wait.

Alcoa’s stalled alumina refinery expansion in Western Australia “will not be back on the agenda until we can secure long-term competitive gas supply,” Michaela Southby, a Perth- based spokeswoman for the biggest U.S. aluminum producer, said in an e-mailed response to questions. The project may cost $4 billion, according to a 2008 estimate by ABN Amro Holding NV.

Royal Dutch Shell Plc plans to deploy a production vessel larger than an aircraft carrier off the coast of Western Australia to feed the liquefied natural gas boom that may see annual exports hit almost A$40 billion ($37 billion) by mid- decade. The state’s gas shortage will last to at least 2020, hindering mine projects, according to the DomGas Alliance.

“You have all this energy and gas but most of it’s exported,” said Peter Arden, a Melbourne-based mining analyst at Ord Minnett Ltd., a JPMorgan Chase & Co. affiliate. “It’s going to be a really big cost input for the whole of Western Australia, especially the miners who rely on it for power.”

Alcoa, the biggest user of gas in Western Australia, gained 4.8 percent to close yesterday at $14.46 in New York Stock Exchange composite trading. The stock has dropped 10 percent this year. Alumina is used to make aluminum. LNG is gas chilled to liquid form for shipping.

Fourfold Jump

New York-based Alcoa suspended a plan to double capacity at the Wagerup refinery more than a year ago because of the financial crisis and gas supply constraints. Gas prices in the state, the source of half Australia’s commodity exports, rose almost fourfold in the past decade and may keep rising until supply becomes available, said consultant ACIL Tasman Pty.

“The prices that are being asked will certainly preclude the development of a lot of future projects,” Tony Petersen, chairman of DomGas, a user’s group that includes Newmont Mining Corp. and Fortescue Metals Group Ltd., said in an interview.

More than 1,000 mine sites operate in Western Australia, which generates 70 percent of the nation’s exports to China, the biggest buyer of raw materials. The nation is the largest shipper of iron ore, alumina, lead, zinc and coal. It ranked sixth among LNG exporters in 2008.

Mining magnate Clive Palmer’s Australasian Resources Ltd. and Atlas Iron Ltd. and are among companies planning at least A$50 billion of projects and expansions in Western Australia and will be competing for gas.

Apache Explosion

Atlas’s power requirements after 2014 “are a real issue,” David Flanagan, managing director of the Perth-based company, said in a response to e-mailed questions.

An explosion at Apache Corp.’s Varanus Island gas plant cut almost a third of the state’s supply in June 2008, closing mines, refineries and processing plants. Apache and the A$27 billion North West Shelf gas fields, in which Shell is a partner, account for about 90 percent of the state’s supplies.

“This is the irony: Australia has only got less than 2 percent of the world’s gas reserves, yet we are striving to be one of the world’s biggest LNG exporters,” Mike Shaw, energy manager of Alcoa’s Australian unit, said in an interview. “There is very little happening on the domestic gas front.”

Alcoa is spending as much as A$140 million to find new gas supplies, according to its Web site. It owns 20 percent of the 1,600-kilometer (994-mile) Dampier to Bunbury gas pipeline.

‘Plenty of Gas’

There are some “serious issues in trying to manage gas supply,” Premier Colin Barnett said March 8. “If we were to have a very rapid increase in demand, it would be tight.”

To be sure, more domestic gas will become available from the projects being built because Western Australia’s government has mandated that the equivalent of 15 percent of LNG from export projects be reserved for domestic use.

“There is plenty of gas out there and where there is firm demand from credible customers, it will be delivered,” Tom Baddeley, director of the West Australian unit of the Australian Petroleum Production and Exploration Association, said in a March 17 statement.

Citic Pacific Ltd., an arm of China’s biggest state-owned company, signed a supply contract last year with Apache and Santos Ltd. for its $4 billion iron ore project at Cape Preston. Apache and Santos last year won a four-year extension to their contract with Newmont Mining Corp.

“Every change in gas price will affect the cost of producing whatever commodity is being mined,” Andrew Caruso, managing director of Australasian Resources, which is seeking to develop a A$3 billion iron ore mine, said in an e-mail.

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19-Mar-2010 11:59

SGX / SGX

Go to Message

x 0

i go against the crowd..i don't like to follow the crowd.. i make my own judgements..

don't follow me..i maybe wrong..but one thing for sure..if u follow the herd, overall u will not make $

Raindrops ( Date: 19-Mar-2010 10:16) Posted:

Haha. Ozone. you have been sayin u are shorting in so many post. Y so pessismistic sia

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19-Mar-2010 11:51

SIA / A380 A Great Way to Fly

Go to Message

x 0

broke 15.6 support of a descending triangle..

short short short..

dyodd

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19-Mar-2010 11:44

Straits Times Index / STI to cross 3000 boosted by long-term investors

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x 0

medical usually quite resilient..stable..

downturn price won't fall so much.. cos sick have to spend ..no choice..

..up turnprice maybe slightly higher cos more pple have $$ to spend

on medical..visit pte doc than govt clinic

niuyear ( Date: 19-Mar-2010 10:10) Posted:

Hi Ozone

If STI pulls back, what about Parkway or is it an isolated case?tkx

ozone2002 ( Date: 19-Mar-2010 08:57) Posted:

STI overbought..

technicals diverging on rising prices..

short ah! put warrant..huat ah!

matter of time for pullback

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19-Mar-2010 08:59

SGX / SGX

Go to Message

x 0

u buy i short..see which side the market favours.. :)

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19-Mar-2010 08:57

Straits Times Index / STI to cross 3000 boosted by long-term investors

Go to Message

x 0

STI overbought..

technicals diverging on rising prices..

short ah! put warrant..huat ah!

matter of time for pullback

Good Post Bad Post

18-Mar-2010 17:31

Straits Times Index / STI to cross 3000 boosted by long-term investors

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x 0

No WATER No Food..demand and supply imbalance..

better hurry buy agri-commodities and water stocks...

South China drought worsens, threatening crops

(AP) – 2 hours ago

BEIJING — Parts of southern China are suffering from the worst drought in decades, leaving millions of people with inadequate water and huge areas of farmland too dry to plant, state media reported Thursday.

The drought in the provinces of Yunnan, Guizhou, and Sichuan, as well as the Guangxi Autonomous Region and the city of Chongqing, has forced local governments to tap underground water sources and use cloud seeding to produce rain for agricultural production.

More than 20 million people throughout the southern region are dealing with water shortages and about 16 million acres (6.5 million hectares) of cropland are suffering from drought, the China Daily newspaper reported.

Yunnan province is experiencing its worst drought in 60 years, with at least 6 million people affected, according to a report on the China Meteorological Bureau's Web site. The drought has caused economic losses of 10 billion yuan (US$ 1.46 billion) in the province, mostly from lost crops or livestock, prompting the local government to pump water from sources hundreds of feet (dozens of meters) below ground, it said.

Meanwhile, more areas of China's Guangxi region have declared a state of emergency. Since late February, 16 more regions in Guangxi have been listed as affected, bringing the total to 77 regions, the Guangxi Meteorological Bureau said on its Web site.

The lack of rain has left tens of thousands of people without enough drinking water and may make it impossible for some to start spring planting, the bureau said. Calls to the bureau rang unanswered Thursday.

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18-Mar-2010 16:07

SGX / SGX

Go to Message

x 0

below $8... huat ah!..haha

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18-Mar-2010 15:57

Midas / Midas

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x 0

now becoming like kobe beef!... premium grade... :)

$1.1!

ozone2002 ( Date: 18-Mar-2010 10:16) Posted:

slow and steady like an ox!

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18-Mar-2010 14:05

Straits Times Index / STI to cross 3000 boosted by long-term investors

Go to Message

x 0

x 1

this time really BOOM!

China in Midst of ‘Greatest Bubble in History,’ Rickards Says

By Bei Hu

March 17 (Bloomberg) -- China is in the midst of “the greatest bubble in history,” said James Rickards, former general counsel of hedge fund Long-Term Capital Management LP.

The Chinese central bank’s balance sheet resembles that of a hedge fund buying dollars and short-selling the yuan, said Rickards, now the senior managing director for market intelligence at McLean, Virginia-based consulting firm Omnis Inc.

“As I see it, it is the greatest bubble in history with the most massive misallocation of wealth,” Rickards said at the Asset Allocation Summit Asia 2010 organized by Terrapinn Pte in Hong Kong yesterday. China “is a bubble waiting to burst.”

Rickards joins hedge fund manager Jim Chanos, Gloom, Boom & Doom publisher Marc Faber and Harvard University professor Kenneth Rogoff in warning of a potential crash in China’s economy. The government has raised banks’ reserve requirements twice this year after economic growth accelerated and property prices rallied.

China has pegged the yuan to the dollar since July 2008 to help exporters weather the global recession. The central bank buys dollars and sells its own currency to prevent the yuan strengthening, driving foreign-exchange reserves to a world- record $2.4 trillion as of December.

The Shanghai Composite Index of stocks jumped 80 percent last year and property prices rose at the fastest pace in almost two years in February, helped by a record 9.59 trillion yuan ($1.4 trillion) of new loans in 2009.

‘Massive Stimulus’

The World Bank indicated today that China should raise interest rates to help contain the risk of a property bubble and allow a stronger yuan to help damp inflation expectations. The nation’s “massive monetary stimulus” risks triggering large asset-price increases, a housing bubble, and bad debts from the financing of local-government projects, Washington-based World Bank said in a quarterly report on China released in Beijing.

“People making comments about bubbles possibly don’t have all the facts,” HSBC Holdings Plc Chief Executive Officer Michael Geoghegan said in Shanghai today. Regulators are in control of the banking industry, and have the ability to curb lending as needed, he said.

Rickards said leveraged speculation in the stock market, wasteful allocation of resources by state-owned enterprises, off-balance-sheet debt through regional governments and the country’s human rights record are concerns.

“Take Russia and China together, neither of them is really deserving any investment” except for short-term speculation, Rickards said. India and Brazil are two of the “real economies” among the developing countries, he said.

Hard Landing

China is poised to overtake Japan as the world’s second- largest economy this year, according to the International Monetary Fund, and Nomura Holdings Inc. forecasts it will contribute more than a third of global growth. The nation has surpassed the U.S. as the world’s largest auto market and Germany as the No. 1 exporter.

Harvard’s Rogoff said Feb. 23 that a debt-fueled bubble in China may trigger a regional recession within a decade, while Chanos, founder of New York-based Kynikos Associates Ltd., predicted a slump after excessive property investments.

Investors Bob Doll and Antoine van Agtmael say China’s stock market isn’t a bubble.

Equities will gain by the end of the year as the government takes measures to prevent the economy from overheating, Doll, BlackRock Inc.’s chief investment officer for global equities, said on March 5. China is unlikely to face “chaos” or experience a hard landing, Van Agtmael, who helps manage $13 billion as chairman and chief investment officer of Emerging Markets Management LLC, said in a Bloomberg Television interview yesterday.

Lending Slowdown

The Shanghai Composite Index is valued at 32 times reported earnings, compared with 52 times at its peak in October 2007. The U.S. benchmark Standard & Poor’s 500 Index trades at 19 times earnings.

China’s economic growth quickened to 10.7 percent last quarter, helped by a 4 trillion yuan, two-year stimulus plan for railways, airports and homes. Property prices in 70 cities rose 10.7 percent from a year earlier in February.

Bank loans slowed to 700 billion yuan last month after surging more in January than the previous three months combined, central bank data showed. Growth of the broadest measure of money supply, or M2, slowed for a third month to 25.5 percent.

‘Very Sound’

The banking industry has “very low impairment charges compared to what you’d expect this time in the cycle,” HSBC’s Geoghegan said. “I wouldn’t be surprised if there’s a gradual increase in impairments, but long term I’m confident that the structure of the banking industry is very, very sound.”

Rickards disputed an argument that China could hold U.S. policies hostage through its Treasuries holdings. The nation remained the largest overseas owner of U.S. debt after trimming its holdings by $5.8 billion in January to $889 billion.

China would suffer massive losses if the debt was dumped, reducing the funds available in the U.S. securities market and forcing the prices lower, he said. The U.S. president also has the authority, rarely used, to freeze such positions, he said.

Rickards worked for LTCM between 1994 and 1999 and helped to negotiate its rescue by 14 Wall Street firms after the fund lost $4 billion in a few weeks in 1998. The Federal Reserve brokered the bailout on concern that LTCM’s collapse would cause a meltdown in financial markets.

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18-Mar-2010 14:01

Straits Times Index / STI to cross 3000 boosted by long-term investors

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x 0

after lunch sti got indigestion? suddenly drop..

Chart

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18-Mar-2010 13:58

Parkway / Parkway

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3.55 faster chiong.. :) build in east.. target all the rich!!..

Parkway to enlarge its hospital in eastern S'pore (BT)

Parkway Holdings will be building a new five-story annexe to its hospital in the eastern part of the island within 18 months..

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