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Alphinity bullish on energy sector

Speaking to InvestorDaily, Mr Andre said that because the new projects will mainly export to Asian markets, domestic supply will tighten and Australian gas prices will be driven up.

While the market is still tentative given the risk of a capital blowout, once completed the projects will generate significant cash flows for LNG producers, according to Mr Andre. 

“Australia will benefit overall from these cash flows through taxation and royalties, and the maintenance of LNG plants will generate work for domestic contractors,” he said. 

It is predicted Australia will produce 80 million tonnes of LNG by 2020, making it one of the biggest producers in the world, said Mr Andre, adding that this would mark a fast expansion in the industry in Australia, given the production rate in 2010 was only 20 million.

Mr Andre said higher gas prices could also provide operators with an opportunity to commercialise the extraction of shale gas, an industry still in its infancy in Australia. 

Australia will encounter a number of challenges in the commercialisation of shale gas including the distance between resource and demand centres, limited processing and transportation centres and the difficult location of shale gas which is typically found 4km to 5 km deep into the ground. 

“Operators will have to confirm productivity through pilot programs and reduce costs to prove commerciality, a process which could take several years,” said Mr Andre, who believes that while there is a future for shale gas in Australia, this is more in the long term. 

While Alphinity remains cautious regarding resources, with the sector as a whole recording an average 18 per cent year on year decline in net profit after tax, Mr Andre said the industry was beginning to stabilise.

A focus on debt and cost reduction by mining companies, the falling Australian dollar and an improved outlook for China had improved sentiment towards the sector, Mr Andre said; however, it would be increasingly difficult to find out-performing companies as supply growth exceeds demand and prices decline. 

He added that it was important to select companies with balance sheets improving faster than expected. 


Alphinity bullish on energy sector
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