Commodities Rich Australia

At the forefront, the Australian economic boom will be the nation’s huge natural gas reserves particularly the Gorgon gas field, first discovered in 1981. Developers Chevron Australia, Shell Development Australia and Mobil Australia Resources in September got their first approval to begin work on the field, which has more than 40 trillion cubic feet of gas.

The Gorgon field, Australia’s largest natural resource, is responsible for the nation’s largest trade deal ever with the world’s fastest growing economy – China. The deal is that for PetroChina Co – Asia’s largest oil and gas company to buy 2.25 million tons per year of liquefied natural gas (LNG) from Gorgon over a period of 20 years.

According to Chevron Australia managing director, Roy Krzywosinski, this project is estimated to have economic life of at least 40 years from the time of start up. It is expected to create around 10,000 indirect and direct jobs during peak construction. While Australia waits for the first Gorgon LNG to ship in 2014, it expects LNG from the $12 billion Pluto project in early 2011, just six years after the field was discovered. Production increases of this magnitude would likely see the value of LNG exports increase towards a similar share of total exports as for coal or iron ore.

Australia’s population is growing more than 2% per year with two thirds of the growth coming from immigration in the past year. Workers are likely to be in short supply, lending to strong demand for skilled migrants and therefore fast population growth, which will have flow-on effects for housing markets. This bodes well for home prices, which gained 3.7% in the third quarter and are up 6.5% on the year.

Looking at interest rate increases in Australia could serve as a sign of things to come in other Western nations, most of which have kept their key lending rates at record lows. However, I note that Australia’s 5.7% unemployment rate looks tame next to the United States’ 10.2% and the United Kingdom’s 7.9%. Even commodity-rich Canada saw its rate swing back up again to 8.6% in October.