Global LNG Demand Growth Fuels Santos

The coal-seam gas producing companies in Australia are currently enjoying boom times. The largest company in this sector is Santos (STOSY). The boom times are occuring because of strong Asian demand for Liquified Natural Gas or LNG. Australian companies such as Santos aim to turn their coal seam methane gas into LNG and sell it to countries such as Japan, China,India,and Taiwan. LNG is popular in these countries because it is a fairly clean burning fossil fuel.

Asian companies continue to eagerly invest in Australian natural resource assets. In the latest major deal,Santos signed a $2.6 billion partnership with Malaysian energy company Petronas for a LNG project in Queensland. Under the deal,Petronas will take a 40% stake in Santos' proposed Gladstone LNG project. This project is expected to have an initial capacity of 3 million tons per year,with first exports expected by 2014. This deal marries Santos' huge coal gas reserves with marketing power of Petronas which is Asia's largest LNG producer. This deal fits right in with Santos' new strategy to greatly expand its LNG business in a bid to gain from rising prices and a forecast surge in global demand for LNG. With the financing from Petronas,this deal also seems to make Santos currently the best positioned player in this space.

There are other players however. Santos' Gladstone LNG project is only one of several major LNG projects planned in Queensland using coal seam gas as a fuel. All of these projects have been greatly accelerated recently by both the Santos-Petronas deal and Britain's BG Group(BRGYY) proposed takeover of Origin Energy. Origin Energy owns the largest coal seam gas reserves in Queensland. Other major companies involved in the area are Queensland Gas Company which is Australia's largest coal seam gas producer. BG Group is also involved with Queensland Gas as they recently bought a nearly 10% stake.

There are other possible winners in the Australian LNG boom. The other major players in the LNG area in Australia are Arrow Energy and Woodside Petroleum (WOPEY.PK) which is involved with a major LNG project called Pluto on Australia's Northwest Shelf. Some of the downstream beneficiaries of this boom may be the engineering companies such as Foster Wheeler (FWLT) and Australian company Worley Parsons among others. Santos does seem to have a leg up on their competitors for now but this is a rapidly changing space,so stay tuned.

Disclosure: Author has a long position in STOSY

Comments

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"The other major players in the LNG area in Australia are Arrow Energy "
You are a day late.

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