05/04/2005 - 22:00

Tim Treadgold: Briefcase - Lustre disappearing from golden days

05/04/2005 - 22:00

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Dullsville becomes Gabville next week when two big resource events hit Perth.

Dullsville becomes Gabville next week when two big resource events hit Perth. Down at the convention centre a few thousand oil types will be spinning tall stories about life in the petroleum game, while at the Duxton Hotel the once-important Australian Gold Conference has been reduced to the Gold Forum.

For WA, which used to market itself as The Golden State (in a direct pinch of California’s slogan) the overlapping events contain a number of messages.

The most important is that gold is fading fast as a commodity of relevance, while oil and gas are booming, and set to dominate planning and investment for decades to come.

The size of the events is a clue to who’s winning in the resources race.

The topics of presentations offer another hint, and the fact that one lasts three days while the other is over in just a few hours is the third indication of who’s on top.

If any further proof is required, look at the planned investment statistics for WA and you will find close to $20 billion in new gas and oil projects and $1 billion for gold.

That 20-to-1 ratio should be a guide for anyone planning their next career move because as the North West Shelf expands, with talk of a sixth liquefied natural gas (LNG) train, plus the $11 billion Gorgon project on the cusp of a green light, plus the Scarborough LNG project, plus Scott Reef and Brecknock – there will be jobs aplenty, if we can find the skilled workers.

Another interesting aspect of the oil and gas boom, and the annual APPEA conference (the Australian Petroleum Production and Exploration Association) in Perth, is that while much is changing some things will stay the same, including a guarantee that the executive of APPEA will trundle out their favourite topic – why governments should do more to encourage petroleum exploration.

Briefcase, which has been listening to this lament for more than 30 years, equates it to the noise of a broken record. In fact it’s far worse than that because the noise is not just vile, it’s wrong.

When APPEA first called for more incentives, some time in the early 1970s, it was claimed that we would soon run out of oil and gas. Each year after that the same tune was played, the same hollow claims made, and the same graph produced to show that Australia had 10 or 15 years of reserves left – talk about the little boy who cried wolf.

Today the chaps at APPEA make the same claims, but this time around a rude surprise could be in store for the men of oil.

For starters, someone (apart from Briefcase) might actually call their bluff and ask why they don’t convert all the gas discovered over the past 30 years into an oil-equivalent figure (which is quite a legitimate statistical move) and point out that Australia has actually been steadily increasing its reserves of petroleum (oil and gas combined).

Just last week Woodside blithely trundled out another 2.5 trillion cubic foot discovery in the Pluto field, a volume of gas equivalent to about 400 million barrels of oil, worth about $US22 billion in the ground with the oil price hovering at the $US55 a barrel level.

The APPEA chaps argue that it’s liquid fuel Australia needs, to which Briefcase says fuel is fuel and if we’re making a fortune flogging gas we can use the proceeds to buy liquids, or we can actually get cracking on converting more of the national road transport fleet to gas power.

However that debate plays out the rude surprise for the oil chaps lies not in the debate about gas versus oil.

It lies in persistent chatter around the world about a windfall tax on oil profits, an event becoming all the more likely because the oil companies themselves are not doing the right thing when it comes to spending their record-breaking plunder.

Rather than stepping up exploration, most of the big boys of oil are indulging in higher dividend payments to shareholders and share buy-backs.

In other words, the investors are winning, and governments are feeling pain from the electorate which, in a democracy, can be quickly relieved by the application of a tax on excess profits – and don’t anyone in the oil game argue that profit levels right now are anything but obscene.

•••

On big changes looming in the resources sector, has anyone taken a squiz lately at the tectonic shift taking place in the world’s gold industry? South Africa’s once mighty mines are in extremely deep strife, and the country built on gold could soon kiss goodbye to at least half of its remaining mines.

Over the past few weeks Durban Deeps, one of the lesser lights of SA Gold, has mothballed an entire division, triggering water inundation problems in adjoining mines operated by the world’s second biggest goldminer, AngloGold Ashanti.

In separate developments, some of Harmony Gold’s best mines have been shut down by strike action, and the mineworkers union has tried to do the same to Gold Fields, only to have its strike declared illegal in the courts.

The problem in SA’s gold industry is simplicity itself. The mines are deep, dirty and dangerous, and the vast numbers of workers required to operate them (up to 20,000 per mine) are demanding higher (and higher) wages as power flows from the white minority to the black majority.

Then there are the costs associated with severe health issues such as a 30 per cent HIV-AIDS infection rate among the workforce, and to cap it all off the SA currency, the rand, has soared in value, crippling profits.

The effects of the changes under way in SA gold are yet to be quantified, but should be a leading topic at next week’s Gold Forum.

In terms of the gold price, it should be good news because less gold, in theory, means a higher price.

In terms of the gold industry pecking order, the latest bout of troubles in SA could well mean that the US and Australia take the top two spots in world gold production terms, displacing the leader of the past 100 years – though what this really given that gold is a metal of declining relevance is probably of little consequence.

•••

“Many men and women enjoy popular esteem, not because they are known, but because they are unknown.” Nicolas de Chamfort

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

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