* Investment in Australia's resources sector rises to just
over $280 bln
* Investment increase partly reflects rising development
* Number of committed projects falls
* Minister warns of challenging times ahead
By James Regan
SYDNEY, Nov 28 Australia's massive pipeline of
liquified natural gas, coal and other resource projects faces
increasing pressure from rising costs and falling prices,
threatening a sector that has so far shielded Australia from the
global economic downturn.
Investment committed to Australian resource projects at the
end of October rose to a record $280.5 billion, partly
reflecting higher project costs and masking a fall in the number
of committed projects, data from Australia's Bureau of Resources
and Energy Economics (BREE) released on Wednesday showed.
"Even with such a pipeline of investment there is no doubt
that we are entering a challenging phase," Australia's minister
for mines, Martin Ferguson, said after the report's release.
"In the face of lower commodity prices, the delivery of this
pipeline of projects is contingent on keeping production costs
down, providing access to skilled labour and increasing our
productivity and efficiency."
Australia has experienced a boom in LNG over the last few
years, but development costs have also ballooned due to soaring
labour costs and the strong local dollar. Three of seven LNG
projects in early stages of construction have already announced
cost hikes averaging more than 20 percent, just as U.S. gas
suppliers are making headway into Asian markets.
A fourth, Chevron's $37 billion Gorgon LNG project
in northwestern Australia, is currently under cost and schedule
review, with some reports that costs could swell to A$60
Overall, committed investment in major resources and energy
projects rose about 3 percent to A$268.4 billion ($280.5
billion) at Oct. 31 versus April, while the number of projects
fell to 87 from 98.
The decline takes into account projects that are up and
running and no longer need development funding.
Still, the number of projects replacing those completed is
slowing, with those announced or at feasibility phases falling
to 277, the lowest in three years, the BREE data showed.
The slowdown comes amid declines in most commodities prices,
driven by a drop-off in Chinese demand which has forced miners
-- from the world's largest, BHP Billiton, to the
smallest -- to review investment plans.
The commodities rout has thrust Australia into a debate over
whether the resources boom is over and can no longer be relied
on to create jobs, power growth and raise tax revenue in a $1.4
trillion economy that has gone 21 years without a recession.
LNG DEVELOPMENT COSTS JUMP
Much of the investment pipeline, A$195 billion, is for LNG,
gas and petroleum projects -- a sum comparable to the total cost
of the Apollo Moon Program in 2012 prices, according to BREE.
Australia has said it aims to overtake Qatar as the world's
top exporter of LNG by 2017, though there is growing uncertainty
over the outlook.
Royal Dutch Shell may delay a final decision on
whether to push ahead with its Arrow LNG plant in Australia as
it considers feeding its gas into other LNG projects in the area
due to rising costs.
Earlier this year, sources said the cost of the Arrow LNG
project in Queensland may have increased to $34-$36 billion from
the $24-$26 billion initially touted.
U.S. GAS THREAT
Meanwhile, a boom in unconventional gas exploration in North
America has led to a collapse in U.S. natural gas prices,
meaning that potential American exporters will be able to offer
their gas at lower prices than Australia.
At current prices, suppliers in the United States and Canada
could undercut Australian suppliers by as much as 20 percent on
sales to Japan alone.
The new competition from North America as well as other new
LNG hot spots such as East Africa mean the window for new
Australian LNG developments has closed, according to some
Asian LNG December spot prices are trading at over
$15 per million British thermal units (mmBtu), against U.S.
natural gas prices of just over $3.75 per mmBtu.
Tokyo has been negotiating with Washington since last year
to allow more shale gas projects to export LNG to Japan, which
hopes to receive LNG shipped via the Panama Canal as early as