The resources super-cycle is nearing an end, dulling the lustre of shares in the sector, but Australia’s energy sector will grow over the medium term, an Alphinity portfolio manager said yesterday.
“We are coming close to the end of the super-cycle for steel, although we can see some short-term support because the market has become too negative on China,” Alphinity principal and portfolio manager Stephane Andre said.
Andre said Alphinity was underweight resources.
“In the medium term, we actually prefer the energy sector,” he said.
“The energy thematic is going to be a big one for Australia. I think people are kind of realising how big it’s going to be.”
Liquefied natural gas (LNG) is at the heart of Andre’s view.
LNG is seen as cheaper and cleaner than crude oil. Australian producers have been scrambling to cash in on demand, expected to grow as more countries restrict carbon emissions.
He said Australia was already benefiting from thermal coal demand. Australia is the second largest exporter in the world after Indonesia.
Australia’s LNG production has been largely stable for the last five or six years at about 20 million tonnes a year but is set to grow, he said.
“Over the last five years, 70 per cent of the world’s LNG projects have been sanctioned here in Australia. As a result, we’re going to move from 20 million tonnes to well over 80 million tonnes,” he said.
“If you make assumptions on the revenue in terms of volume and prices, the portion of LNG revenues for Australia is going to go to similar levels as iron ore. It’s going to overtake coking coal and thermal coal.”
Australia exported $13 billion worth of LNG last year. However, Andre forecast LNG export revenue to grow to $89 billion by 2020, just under $90 billion export revenues for iron ore.
Andre said a number of LNG producers, including Oil Search, had sold their product forward, representing lower risk than newer, unsold projects coming on stream.
