Strong Australian dollar to help build cheap LNG export terminals, says Origin Energy CEO
Release Date: 2011-04-29
THE Australian dollar's charge to a 29-year high is a boon for the country's gas industry, making giant export terminals cheaper to build, says the chief executive of Origin Energy, Australia's biggest utility.More than $100 billion of investment is planned by international energy companies in Australia over the next decade to capitalise on rising demand in Asia for clean-burning fuels.
That could catapult Australia ahead of Qatar as the world's largest exporter of liquefied natural gas, or LNG.
Australia's resources industry is boosting demand for labour, fuelling potential growth in wages, and soaking up spare capacity in the economy.
As a result, rising wage-inflation is stoking bets that the central bank will have to increase interest rates again, helping keep the Australian dollar at post-float highs.
"It's very favourable at the moment," Origin's Grant King told Dow Jones Newswires in an interview. "For an Australian dollar company with an Australian dollar balance sheet the strength of the Australian dollar is very encouraging through this construction phase."
The Australian dollar rallied earlier today to a post-float record of $US1.0903, and some economists expect it to hit $US1.1200 by the end of September.
Given the scale of their proposed investments in Australian LNG, companies like Origin can influence currency markets by having to sell large parcels of Australian dollars to buy project components used in cooling natural gas to a liquid so it can be exported by ship.
Origin and US partner ConocoPhillips aim to approve construction of the first phase of their LNG project in Queensland midway through the year. The project could cost $US20 billion ($18.3bn) to build according to analyst estimates.
The high Australian dollar will give the Origin-led development an early tailwind, as a large amount of the project's construction costs will be borne when a final investment decision is made through commitments to suppliers, said Mr King.
To be sure, multiple LNG projects will add to labour shortages. Origin and Conoco's Australia Pacific LNG project is one of several Australian gas export developments aiming for approval in 2011.
Chevron wants to sanction its Wheatstone LNG project in the July-December period, while Inpex and Total aim to approve construction of their Ichthys LNG project in the fourth quarter.
Woodside Petroleum says it hopes to give the go-ahead for an expansion of its $14bn Pluto LNG project in Western Australia by the end of the year.
Demand for labour, components and engineering expertise has already been stretched by the recent approval of three rival Australian LNG projects led by BG Group, Santos and Chevron.
A strong Australian dollar generally puts a net cap on inflation by lowering the cost of imported goods such as electronics and clothing, Westpac Senior Currency Strategist Sean Callow said.
It also slows growth in local export industries such as manufacturing and tourism. Growth in the LNG industry, however, is putting more pressure on the economy.
"People's optimism over LNG is one of the reasons people are happy to keep buying Aussie dollars from a speculative point of view," said Mr Callow.
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