Iron Ore Billionaire Andrew Forrest Trying To Give His Fortune A Gas Lift
Australia is vying with Qatar for the title of world’s biggest exporter of liquefied natural gas (LNG), but in a twist that defies common sense Australia is also on the verge of becoming an LNG importer.
Long distances between the most easily extracted gas and Australia’s population and industrial centers have conspired with a web of government regulations to make LNG imports almost essential.
The next few weeks should see LNG import plans finalized, around the same time the Australian oil and gas industry meets for its peak conference, the annual meeting of the Australian Petroleum Production and Exploration Association (APPEA) in Brisbane.
Most oil and gas industry participants at the three-day event which starts on May 27 dislike the idea of LNG being imported into a country with a major LNG export sector but are showing few signs of participating in a rush which has seen five import-terminal proposals put forward.
One man seeking to play a role in plugging a gap left by traditional oil and gas companies is Andrew Forrest, a billionaire iron ore miner who has spotted an opportunity to diversify.
Forrest, the founder and major shareholder in Fortescue Metals Group, did much the same thing almost 20 years ago in iron ore when the leading producers of the steel-making mineral under-estimated Chinese demand creating an opening for him to start a business valued today at $17 billion, with Forrest’s stake worth $5.6 billion.
Industry Talks, Forrest Acts
While delegates are gathering in Brisbane at the APPEA conference Forrest and a team working for his privately-owned Squadron Energy will be assessing inquiries from major gas consuming companies, including plastics and fertilizer makers, keen to obtain reliable supplies of gas — and they really don’t care where it comes from.
Until recently, Forrest was seen as an unlikely winner in the LNG import business because he was a later starter with long-term power-supply leaders such as AGL believed to be leading the way.
But over the past few days Forrest has stormed ahead, securing government approval to install a floating re-gasification ship in the steel and coal center of Port Kembla on the coast of New South Wales, a region hit hard by a gas shortage which has developed down Australia’s east coast.
Critical to Forrest’s LNG import plan is the price industrial customers will pay with talk of five-year deals from Squadron believed to have been offered at between $7-and-$8.50 a gigajoule (950,000 British Thermal Units).
Haggling Over Price
That price, if correct, is about 20% more than some customers says is there limit, but is less than recent short-term gas prices in Sydney, Australia’s biggest city.
It’s the high prices potentially on offer in industrial centers such as Sydney and Melbourne which has drawn Forrest, and others, into the LNG import business.
Not lost on anyone is the irony of LNG being imported into the south of Australia while a series of big LNG facilities in the north and west export to the rest of the world, especially China, Korea, and Japan.
How the gas-gap developed between north and south is partly a function of geology and geography (there’s more gas in the north). But, a more important factor is opposition to gas exploration by State Governments in Victoria and New South Wales, especially if the gas is located in near-surface coal seams or requires rock fracturing (fraccing) to be extracted, as happens with great success in the U.S.
Whatever the cause, the result is the creation of a second opportunity for Forrest to make a fortune while oil and gas majors watch from the sidelines, which is exactly what big iron ore producers such as BHP and Rio Tinto did when Forrest launched Fortescue.