27/08/2009 - 00:00

Dollar value goes to water

27/08/2009 - 00:00

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WITH much front page hype, the federal government last week announced what it claimed was Australia's biggest ever deal when PetroChina agreed to buy 2.25 million tonnes of LNG a year for 20 years, worth $50 billion.

Dollar value goes to water

WITH much front page hype, the federal government last week announced what it claimed was Australia's biggest ever deal when PetroChina agreed to buy 2.25 million tonnes of LNG a year for 20 years, worth $50 billion.

The deal was struck by ExxonMobil, one of the joint venture partners in the Gorgon joint venture, itself a $50 billion project considered the biggest of its type.

But is this the biggest Australian investment? And was the associated gas deal the largest ever?

In terms of deals, the archives reveal that the North West Shelf consortium signed up a group of Japanese utilities in 1985 for $50 billion - $2.5 billion per year for two decades. That deal would be worth about $117 billion in today's dollars.

While some might argue that the NWS was in fact six partners and that the Japanese utilities were several individual companies, the deal was struck as a one-off, according to the Sydney Morning Herald on August 1 1985.

In any event, the NWS partners still act in concert in terms of marketing. And, of course, the Japanese buyers regularly acted as a cartel when it came to major energy deals.

On the investment side of the equation, the cost of the NWS is a little more difficult to calculate. According to various news reports and company records, the domestic gas plant cost $2.1 billion and the first three LNG trains a further $9.8 billion.

The domgas element started supplying in 1984, which makes that investment worth $5.2 billion today.

The first three LNG trains were completed by 1992. At the most conservative valuation, if the $10 billion investment had been made in the last year of construction the cost today would have been more than $15 billion to produce half the amount of LNG proposed for the Gorgon project.

For the NWS, that is a total of $20 billion, before two more trains were added.

In comparison to this, another major investment project in WA was the water pipeline to the Goldfields, which was considered one of world's biggest engineering feats at the time.

In 1896, the state's parliament authorised the government to raise a loan of £2.5 million to fund the work, which was completed in the early 1900s.

That amount alone is worth $349 million in today's terms.

The pipeline's cost was said to be worth several times the then independent colony's annual revenue. Given today's WA government has income of around $20 billion, it is possible that, in context, the water pipeline scheme was really the biggest WA investment.

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

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