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Australia’s LNG boom transits to production, company profits up

Australia’s LNG boom transits to production, company profits up

CANBERRA: Australia’s natural gas boom cycle is set to kick into gear as the production phases commences, according to leading analysts on Wednesday, while company profits have continued to soar. The Deloitte Access Economics quarterly assessment of Australia found that as the production has commenced on the “third and final train” of the monumental 61 billion Australian dollar (48.27 U.S. billion) Gorgon LNG project in the state of Western Australia – the country is set to shift into a gas production, rather than construction phase. Lead author of the report, Deloitte partner Stephen Smith, told Xinhua on Wednesday that Australia recently underwent a large construction phase driven by the mining industry, but conditions in the country have now changed. “The profitability of building a new mine is now lower than it was before – now a number of mines are moving into a production phase,” Smith said.

“The fact that there isn’t a huge amount of construction in the pipeline coming in to plug that gap – in the commodities sector – is a function of the fact that commodity prices are still low relative to where they were a number of years ago.” However, this transition was not down to a lack of capital investment available, according to Smith, but rather is intrinsically tied to timing, and he believes that there is no danger moving forward for these big producers who are now set to come online. “The commercial decisions around the construction of these plants are based around long-term, 30 year plus contracts. To a large extent, there is not a huge amount of flexibility in these contracts – but the decisions were sound ones,” Smith said.

Company profits were also up for the year, according to Smith, who said that one of the “big stories” of 2017 has been the before tax increase in business profits of over 33 percent – with much of that coming from the mining companies, who saw their profits improve by 112 percent. “Profits have also lifted outside of the mining sector, up by almost 17 percent over the past year. This is the fastest growth in profits seen in the non-mining sector since 2010,” Smith said. “Profits in both professional services and administrative services rose by more than 50 percent, while there were strong gains in the manufacturing sector.” But there were areas that could stand to improve, and Smith highlighted that commercial construction levels had been yet again “disappointing” over the course of the past year. “Looking ahead, however, there has been a solid lift in commercial approvals,” Smith said. “And the better news was broad-based, with planned work rising in sectors such as retail, offices, accommodation, health care, and entertainment and recreation.” The value of projects that are currently under construction, or definitively slated for delivery fell over the last quarter by 18.1 percent, to around 350 billion Australian dollars (276.71 U.S. billion), partly due to the completion of the Gorgon LNG project.