Natural Riches
Australia is not only known for its natural beauty above the ground but also for the wealth of riches that are found under the ground and in the ocean. It had long been known that there was gold to be found in Australia. Interest was sharpened by the Californian gold rush of 1849 and prospectors made a rich strike in February 1851 in New South Wales.
Within 10 years the population of Australia had doubled lured by the glint of gold dust. It seems that most of the millionaires were those who made the shovels and not those who used them. Gemstones, opals, diamonds and sapphires are abundant.
Modern technology has revealed vast quantities of coal and iron ore for which there is a ready market in the Far East, particularly in China. There is also shale oil, potentially up to 233 billion barrels, and natural gas, for which Australia is the third largest LNG producer behind Qatar and Malaysia, according to the International Energy Agency (IEA).
Energy Superpower
Australia’s main hope is being pinned on a surge in investments in liquefied natural gas (LNG). Investment bank Morgan Stanley predicts the country will become a new energy superpower within the next four years, allowing it to eliminate its current deficit for the first time in 40 years.
The bank’s East Asia expert Geoffrey Kendrick estimates the value of Australia’s LNG exports will grow from AU$16billion (£8.8billion) to around AU$46billion (£25billion) by 2017. Most of the LNG is exported to Japan, now heavily reliant on gas imports following the Fukushima nuclear disaster in 2011.
An Eye on the Costs
While the US and Canada are also building LNG plants, they currently cannot export it to Asia cost effectively. What sets Australia apart is that has been expanding LNG capacity since the 1990s and has more gas production projects in the pipeline than anywhere else, allowing it to become top of LNG tree until at least 2025, says Kendrick.
However, less favourable theories say Australia’s rising significance as an energy provider in Asia will only increase the US focus towards Far Eastern markets, thus creating even greater competition. To ensure investors keep on board, Australia must keep a close eye on high LNG project costs compared to similar projects in America.
So What?
Australia’s position as an investment opportunity for main stream investors is less clear. The ETF (iShares MSCI Australia – SAUS) hit an all-time-high at 2,258p in March 2013 and in three months fell back 21% to 1,775p in June 2013. The price is currently failing to break through a resistance level around 2,028p.
Prices have previously been much lower, 1,331p in July 2010, and could fall back there again. The ETF is on our Watch list but is not on our Buy list today (April 2014).
This material is published by Raymond James Investment Services Limited (RJIS) for information purposes only and should not be regarded as providing any specific advice. Opinions constitute our judgement of this date and are subject to change without warning.