Gas Giants Invest AU$16.7b in Coal-Seam Gas

Reddit

Five energy companies made year-highs on your Money Morning sidebar today. We realised with a start that they’re all coal companies. Yep. They all have a little coal property to call their own. The new Australian dream, perhaps.

Not just coal though…coal seam gas. Black rock is the new black. Rock on.

We emailed our full wrap-up of the sector to our beloved Diggers and Drillers fraternity a couple of days ago. But the big-wig of the sector is Santos (ASX:STO).

Santos, after wooing several potential partners, has found a mate to invest in its LNG export terminal at Gladstone. Petronas, Malaysia’s state oil and gas investment vehicle, grabbed 40% of the project for AU$2.6 billion. Santos must have laid the woo on pretty thick.

But woo is an infectious disease in the hard asset sector these days. You have to wade through a viscous slurry of woo to get anywhere. Romance is blossoming…covetous, greedy-eyed romance. Everyone wants someone else’s stuff.

How else could Australia’s largest sugar producer make 38% of its revenues from building products…35% from aluminium…and just 19% from sugar? It’s been doing some whacky diversifying.

Whacky or not, Gabriel has caught the sweet scent of gains in CSR’s (ASX:CSR) chart. As usual, you’ll find him toiling away down at the bottom of the e-letter.

This new Santos story opens up another door for coal-seam gas producers. BG’s bid at the start of this month was like connecting a jumper lead for stocks with coal-gas. Petronas’ foray will shift share prices up a gear again. Two of the world’s largest LNG producers have thrown their back into Australia’s top-notch coal-seam gas reserves. If they play this right, the stuff should be whizzing out of port and up to China within a few years.

How good is that demand source though?

Huge Growth in LNG Demand

Well, latch your peepers onto this offering from ABARE. It shows you what LNG demand is capable of doing in the next few years. LNG is as good as any fossil fuel, but it’s one of the cleaner ones. So it’s getting top billing these days.

Growth just keeps popping up in the energy sector. A thought hit us late yesterday on the topic. We think the oil price is too hot to touch right at this instant. Further down the track, it’ll be a little cheaper.

But when it comes back a little, that doesn’t mean things go back to normal.

The current spike in oil prices tells you something. No-one has full control over the oil price. The purpose of OPEC in the first place was to keep oil between US$22 and US$28. Obviously it didn’t keep it there.

Want a recipe for today’s oil price? Easy. Take one full-sized digit. Add it to either of those two numbers above. Mix thoroughly. Hey presto. You’ve done it, by jove. You’re now equally as capable as the good people running the International Energy Agency.

This will be a year of oil market exposé. If OPEC has a leash on oil, it’ll be taking up the strain soon. You’ll soon find out whether production can rise to meet the shortage or not.

Tower Says Life Insurance Market will Triple

Life insurer Tower just added 80% to its net profits. It announced this yesterday. Then it said that the life insurance market will triple in the next ten years.

Bold, very bold. Predicting life insurance demand is no easy task. Neither is predicting the supply for it. Do you plan ten years in advance to take out a life insurance policy? How can Tower possibly know something so uncertain?

It probably uses some sort of model based on demographics, and human behaviour. Such models over the course of history have been enormously successful at embarrassing their owners. It’s difficult to put your thumb on human behaviour because it appears to have a random component.

We wouldn’t invest in that kind of prediction. You should treat any growth stock with a dour attitude. Most of them don’t live up to expectations.

Al Robinson
The Daily Reckoning Australia

Dan Denning
Dan Denning examines the geopolitical and economic events that can affect your investments domestically. He raises the questions you need to answer, in order to survive financially in these turbulent times.
Reddit

Leave a Reply

Letters will be edited for clarity, punctuation, spelling and length. Abusive or off-topic comments will not be posted. We will not post all comments.
If you would prefer to email the editor, you can do so by sending an email to letters@dailyreckoning.com.au