“When you come up here,” said Origin Energy Ltd (ASX: ORG, OTC: OGFGF, ADR: OGFGY) CEO Grant King of the recent World Gas Conference, “you realize Australia has got to come through for everybody.”

According to Mr. King, speaking to The Australian in the afterglow of the Jun. 4-8 gathering in Kuala Lumpur, “Australia is the LNG supply story. The world is depending on Australia delivering the LNG supply story. The discussion in Australia tends to revolve around the challenges this has brought to Australia and the economy and productivity, and the politics surrounding where we get the workers from, but the world needs it delivered.

“Sometimes we lose sight of it in Australia, just how important this is to the rest of the world.” The “rest of the world,” in the liquefied natural gas context, begins with Japan.

The International Gas Union, in its World LNG Report 2011, described the March 2011 To-huku earthquake of Japan’s Pacific coast as a “game changer” for the industry. The undersea mega earthquake, which registered magnitude 9 on the moment magnitude scale, triggered a massive tsunami that reached a measured peak of 133 feet in Miyako in To-hoku’s Iwate Prefecture and washed up to six miles inland in the Sendai area.

The tsunami caused a number of nuclear accidents, primarily meltdowns at three reactors in the Fukushima Dai-ichi Nuclear Power Plant complex. Many electrical generators were taken down, and at least three nuclear reactors suffered explosions due to hydrogen gas that had built up within their outer containment buildings after cooling system failure.

In May 2012 Japan shut down the last of its 54 nuclear power reactors, a little over a year after the To-huku earthquake/tsunami left 16,000 dead and 3,000 missing. Although Prime Minister Yoshihiko Noda announced in a Jun. 8 televised broadcast his decision that two reactors at Kansai Electric Power Company’s Ohi nuclear plant should be restarted, Japan is currently without nuclear power for the first time since 1970.

Nuclear power accounted for about 30 percent of Japan’s electricity needs before the Fukushima disaster. The Japanese government had planned to increase that dependence to over 50 percent by 2030. But according to Mr. Noda, “Cheap and stable electricity is vital. If all the reactors that previously provided 30 percent of Japan’s electricity supply are halted, or kept idle, Japanese society cannot survive.”

Mr. Noda is flying in the face of overwhelming public opposition–a Jun. 5 poll by the Pew Research Center found that 70 percent of Japanese said the country should reduce its reliance on nuclear energy and 52 percent are worried that they or someone in their family may have been exposed to radiation–as well as significant government resistance–a third of governing party members of parliament petitioned the prime minister to exercise “greater caution” over the issue, according to The Mainichi Shimbun.

A final, formal decision to restart the Ohi reactors awaits approval of the governor of Fukui prefecture, where the reactors are located.

Japan’s 10 utilities consumed 22 percent more natural gas equivalent for power generation in May from a year ago, setting a monthly record while the country’s 54 reactors were idle. They burned 4.41 million metric tons of LNG–a record for May–according to data released Jun. 13 by the Federation of Electric Power Companies of Japan.

Meanwhile, consumption of fuel oil and crude oil was up 157 percent at 462,000 barrels per day from a year ago. The 10 utilities generated 69.1 billion kilowatt-hours of electricity in May, up 0.2 percent from a year earlier, as nuclear output fell to zero for the first time in 42 years.

Concerns that rolling blackouts will harm power generators such as Kansai Electric, its customers and the broader economy have certainly influenced Mr. Noda, though he did receive clearance from a panel of scientists before making his televised appeal in early June. These rocks, however, along with the hard place of public opinion, have Japanese leaders in a tight spot.

Japan is set to release sometime in the next three months a revised energy plan to replace the 2010 version that called for 50 percent of the nation’s power to be nuclear by 2035. One expert forecasts an increase of 65 million metric tons of LNG per year as a potential outcome.

It seems inevitable that Japanese imports of LNG will rise from here.

Jumping Nat Gas

Even before the total nuclear shutdown took effect, Japan’s reliance on LNG had spiked as a result of Fukushima: During 2011 Japan’s LNG imports rose by almost 12 percent from 2010 levels to 78.8 million metric tons.

But Japan is not the only country demanding cleaner-burning fuel sources. Global LNG trade grew by 8 percent, or 17.7 million metric tons, to a new high of 241.5 million metric tons in 2011 due to Fukushima but also because of increased demand from the UK, which imported 18.6 million metric tons in 2011, 4.4 million more than in 2010; India, which imported 12.7 million metric tons in 2011, 3.4 million more than in 2010; and China, which imported 12.8 million metric tons in 2011, 3.3 million more than in 2010.

This growth offset import declines of 3.4 million metric tons for Spain and 2.6 million for the US. Since 2006 the global LNG trade had grown by 52 percent, from 159.1 million metric tons.

The LNG spot market, meanwhile, grew by almost 32 percent, or 15 million metric tons, to reach 62 million metric tons, about a quarter of the global LNG trade. The spot market accounted for 16 percent of LNG trade in 2006.

And 15 new regasifaction terminals were brought onstream in 2011, including new facilities in the Netherlands, Norway, Sweden and Thailand. With the addition of these three 27 countries now have the capacity to import LNG. Global regasification capacity as of the end of 2011 stood at 608 million metric tons per annum, up 64 percent from 2006.

Argentina, Brazil, Canada, Chile, China, Kuwait, Mexico, and the United Arab Emirates have begun importing LNG since 2006, joining Belgium, the Dominican Republic, France, Greece, India, Italy, Japan, Portugal, Puerto Rico, the Republic of Korea, Spain, Taiwan, Turkey, the UK and the US.

Many of these countries weren’t considered potential LNG importers a decade ago, while imports to the US, which in 2006 was forecast to be the largest LNG import market by now, have slowed to a trickle. These changes reflect the dynamic nature of the market.

As of Dec. 31, 2011, the global LNG fleet consisted of 360 vessels, more than one and a half times its size at the end of 2006. Short-term spot charter rates doubled during the year to an average of USD78,000 per day. By the end of the first quarter of 2012 this figure had spiked to USD130,000 for newer, more efficient vessels.

Although interregional trade has increased significantly, there is still no “global” market for LNG. Prices are still determined by factors such as location, contract structure and timing more than global balances. Prices sometimes vary within markets, with multiple sources of supply contracted at different levels. This is unlikely to change anytime soon, particularly in light of the long-term nature of many existing supply contracts.

According to the International Energy Agency (IEA), consumption of natural gas will increase by between 45 percent and 65 percent from 2008 to 2035, driven by factors such as policy initiatives to reduce dependence on nuclear power following the Fukushima disaster, carbon reduction schemes and the development of unconventional gas.

If Japanese authorities don’t approve nuclear power generation again, the country will need 17 million metric tons more of LNG this year than it did prior to the nuclear crisis. China and India are also expected to be large growth markets for Australian LNG. The IEA expects China to become one of the world’s largest importers of natural gas by 2035, as it takes time to integrate the commodity into its economic structure.

And gas demand will undoubtedly continue to grow as a result of the growing world population, which hit 7 billion late in 2011 and is forecast to double by 2050. Most countries will need to maintain a mix of gas and coal in order to ensure adequate supplies of energy to meet their economic needs.

…In Fact It’s A Liquid

Liquefied natural gas–or methane (CO₄)–is a clear, colorless, odorless, non-toxic, non-corrosive liquid that won’t pollute land or water. It’s produced by cooling natural gas to minus 260 degrees Fahrenheit, or minus 160 degrees Celsius, at which point it becomes a liquid.

This process–liquefaction–allows more efficient transport of natural gas over long distances where pipelines don’t exist, either by truck or by sea, as LNG takes up 600 times less space than natural gas in its gaseous form.

Converting natural gas into LNG can make stranded natural gas deposits more economically viable, as constructing pipelines can be expensive. In addition, LNG won’t explode in an unconfined environment. In the unlikely event of an LNG spill, the gas has little chance of igniting.

The typical liquefaction process involves, first, the extraction of gas and its transportation to a processing plant where it is purified by removing any condensates such as water, oil and mud as well as other gases such as carbon dioxide (CO₂) and hydrogen sulfide (H₂S).

This process will also typically be designed to remove trace amounts of mercury from the gas stream to prevent mercury amalgamating with aluminium in the cryogenic heat exchangers. The gas is then cooled down in stages until it is liquefied. LNG is finally stored in storage tanks and can be loaded and shipped. Specially designed cryogenic sea vessels or cryogenic road tankers are used for its transport.

The term “LNG train” describes the liquefaction and purification facilities in a liquefied natural gas plant. Each LNG plant consists of one or more trains to compress natural gas into liquefied natural gas. A typical train consists of a compression area and a propane condenser area as well as methane and ethane areas.

The LNG market developed significantly in the Asia-Pacific in the 1970s and ’80s, driven by the major industrial economies in the region at the time–Japan, Korea and Taiwan–seeking to diversify their energy supplies following the surge in oil prices between 1973 and 1980. These economies have little in the way of domestic gas reserves and aren’t easily served by pipelines, so they have sought to import gas in the form of LNG.

By 1990 Japan accounted for two-thirds of global imports, and although this share has since fallen Japan remains the world’s largest importer of LNG by a wide margin. China and India have only recently begun importing LNG, receiving their first shipments in 2006 and 2004, respectively, and each accounts for a relatively small share of world imports.

In the Atlantic, a wide group of buyers has developed, including a number of European nations looking to diversify supplies away from pipeline gas, offset declines in local production and secure supply for expanded gas-power generation.

Qatar is the world’s largest exporter of LNG, supplying around a quarter of global exports in 2010. Historically, Qatar primarily served the Asia-Pacific market, but more recently Atlantic buyers have accounted for nearly half of Qatar’s exports.

Australia is currently the fourth-largest exporter of LNG and is the only significant LNG exporter among Organization for Economic Cooperation and Development (OECD) nations. As of now Australia exports entirely to the Asia-Pacific region.

Three factors stand to underwrite the industry for decades:

• There is abundant new supply, as sources including shale and coal seams mean more gas than ever before.
• Demand is rising as emerging Asia seeks to diversify fuel sources and regional and global shifts away from nuclear power in the aftermath of Fukushima continue.
• And natural gas represents the solution to a global problem, as it will help the world transition to lower-emission economy.

Qatar reached its target of 77 million metric tons per annum of liquefaction capacity in February 2011 and has now placed a moratorium on new projects. There is little opportunity for growing liquefaction capacity in the Middle East, and there’s little movement elsewhere around the world for same.

Global liquefaction capacity of 278.7 million metric tons per annum at the end of 2011 represents 52 percent growth from the end of 2006. With 84 million metric tons per annum of capacity under construction, global capacity is on pace to reach 334.9 million metric tons per annum by 2016.

Beyond Australia, a number of projects were proposed, including in the US, Western Canada, Mozambique and Nigeria. But few have reached the final investment decision (FID) stage, and other proposed projects have been scrapped due to impracticality, excessive costs or political difficulties.

On the other hand, Australia’s liquefaction capacity is set to grow significantly over the next decade. Of projects currently under construction, 73 percent–accounting for 61 million metric tons per annum of capacity–are rooted in the Land Down Under. This growth is driven by ample conventional reserves, located primarily offshore of northwestern Australia, as well as significant coal-seam gas-to-LNG projects, based in eastern Australia.

In addition to the 61 million metric tons per annum of liquefaction capacity currently under construction an additional 93 million metric tons is in some stage of front-end engineering and design (FEED) or is proposed for future development.

Not all this capacity will actually be brought onstream on schedule. And very few projects are scheduled to debut during the 2012-to-2014 period. But many of the Australian projects now underway will contribute to supply beginning in 2015 and ramping up in 2016.

The global market for LNG is clearly of growing importance to the Australian economy.

Crossfire

Although much has been made lately of the potential impact of enormous US shale gas discoveries and development, the global LNG industry depends on Qatar, which controls output from its enormous North Field and has only stopped expanding its world-leading LNG output because of a government moratorium.

The world-beating per capita GDP generated by the oil Qatar produces alongside its LNG means there’s no reason for Qatar to crank up its output soon. But Qatar could give away its LNG free and still live handsomely off the profits generated by its oil production.

According to Santos CEO David Knox, Qatar and the potential rise of East Africa as a new source of LNG are much more significant long-term challenges to the LNG industry than the current debate about US gas. “I believe (US gas) will play a factor, but it’s not the dominant factor in Australia’s ability to compete.”

According to Mr. Knox, “That is really the decision the Qataris make: how much gas they decide to sell into Asia and how much they sell into Europe.

“And the second really important thing for the industry is what happens in East Africa. There have been some really substantive discoveries made there. They are two really long-term issues that we in Australia need to recognize if we’re to stay competitive.”

This line was followed in numbers at the World Gas Conference, where fears of the possible emergence of cheap North American gas as a structural threat to healthy LNG prices in Asia were assuaged early by a battery of speakers reinforcing the view that only a small amount of the cheap gas will ever find its way to the Asian market.

Although LNG producers have convinced themselves that the threat posed by US LNG is minimal, it was only a few years ago that the biggest, smartest guys in the oil and gas business were investing in LNG import terminals along the US coast. Those LNG import terminals, built before their folly was realized, are now lining up to be converted into export terminals.

The huge increase in US gas reserves on the back of the shale gas and coal-seam gas revolution caught everyone by surprise, and its impact on energy markets is still evolving. But new legislation and regulation will likely prevent too many of the proposed US LNG export facilities from going ahead, owing to the huge advantage cheap gas can give the US industrial machine.

North American natural gas is cheap at the moment, which is why there’s a lot of Japanese interest. But in light of domestic demand, it’s not likely the US will export natural gas in significant quantity the foreseeable future, if at all.

Of more direct and immediate concern is the fact that as investment has picked up in recent years, costs have risen. Australia-based projects are competing for skilled labor, have become more complex and are taking longer to complete. The strong Australian dollar and historically high raw materials prices are also contributing to cost overruns.

According to an IEA analysis Australia’s pipeline of LNG projects will probably be delayed by high project costs and “first-of-a-kind” risks, potentially leading to a spike in prices in 2015.

The seven LNG projects under construction will ultimately provide the bulk of the world’s committed new supply but not as quickly as developers claim. According to the IEA’s 2012 medium term gas market report, “These projects are likely to face many challenges, including higher capital costs and workforce shortages.”

The three export plants being built on Gladstone’s Curtis Island at a cost of nearly AUD70 billion are the first to convert large volumes of coal-seam gas (CSG) into LNG, scheduled for production from 2014. The agency also noted opposition to CSG development from farmers in New South Wales and Queensland.

Meanwhile, Royal Dutch Shell is building the world’s first floating LNG plant to process gas from the Prelude field off the coast of Western Australia.

Of the three other projects, the AUD43 billion Gorgon plant has high CO2 levels, and the Ichthys LNG project that will process offshore Western Australian gas at Darwin is Japanese oil company Inpex’s first LNG project as operator.

As for the specter of US gas exports, however, the IEA forecasts the US government will take a conservative approach to protect local manufacturers.

It’s All Right Now in Australia

It wouldn’t be a stretch to say the recent World Gas Conference was a celebration of sorts, fêting Australia for the key role it will play in meeting global targets for LNG production in coming years. More than one expert presenter in Kuala Lumpur Jun. 4-8 described Australia’s huge project pipeline as “game-changing” for global energy markets.

If projects currently underway proceed as planned, Australia’s LNG exports are likely to increase more than three-fold over the next five years. In addition to committed projects, a number of other developments are being evaluated that could see LNG exports approach coal and iron ore in terms of their contribution to total export earnings over the coming decade.

Australia exported 19.2 million metric tons of LNG worth a total of AUD11.1 billion (USD10.8 billion) in 2011, according to Australia’s Bureau of Resources and Energy. There are currently three LNG projects in operation, with total capacity of 24.2 million metric tons per annum: the Darwin LNG plant, a project that includes Australia’s Santos Ltd (ASX: STO, OTC: STOSF, ADR: SSLTY) as well as Tokyo Electric Power (Tokyo: 9501, OTC: TKECF, ADR: TKECY) and Tokyo Gas (Tokyo: 9531, OTC: TKGSF, ADR: TKGSY) among its investors, the North West Shelf LNG project, which includes Australia-based BHP Billiton Ltd (ASX: BHP, NYSE: BHP) and Woodside Petroleum Ltd (ASX: WPL, OTC: WOPEF, ADR: WOPEY) as well as Japan’s Mitsui & Co Ltd (Tokyo: 8031,  OTC: MITSF, ADR: MITSY) and Mitsubishi Corp (Tokyo: 8058, OTC: MSBHF, ADR: MSBHY), and Woodside’s Pluto project in Western Australia.

And the development pipeline is vast, with approximately AUD175 billion (USD170 billion) worth of new projects underway. Three large-scale LNG projects in Western Australia, including Chevron’s (NYSE: CVX) Gorgon and Wheatstone projects and four coal-seam gas (CSG) LNG projects, which include the Santos-led Gladstone LNG plant, and BG Group Plc’s (London: BG, OTC: BRGXF, ADR: BRGYY) Queensland Curtis LNG plant, are expected to come online in the next five years.

This will add almost 59 million metric tons per annum to existing capacity, taking Australia’s LNG capacity to about 83 million metric tons. This increase in output is expected to make its way to Asia, especially to Japan and Korea. China’s and India’s growing demand for power will also make them look for alternatives to coal.

From an investor’s point of view, the LNG industry is unusual in that positive market conditions don’t always translate into windfall profits.

More so than most other commodities, the LNG sector requires a symbiosis between producers and customers. The huge upfront investment required for LNG projects means decades-long sales contracts are needed to support the development, and these relationships generally foster sense of cooperation rather than opportunism between LNG buyers and sellers.

Japanese companies have invested heavily Australia-based LNG projects to ensure supply continuity. As previously, TEPCO and Tokyo Gas are involved in Darwin. And in addition to their involvement in the North West Shelf project, in May 2012 Mitsui and Mitsubishi, through their 50-50 joint venture Japan Australia LNG, bought a 14.7 percent stake in Woodside’s Browse Project in Western Australia.

Japan-based Inpex Corp (Tokyo: 1605, OTC: IPXHF, ADR: IPXHY) holds a 76 percent stake in the Icthys project in Western Australia. France-based Total SA (France: FP, NYSE: TOT) holds the remaining 24 percent.

China, too, is investing in these projects. Australia Pacific LNG is a joint venture among AE Portfolio Aggressive Holding Origin Energy Ltd (ASX: ORG, OTC: OGFGF, ADR: OGFGY, ConocoPhillips and China Petroleum & Chemical Corp (Hong Kong: 386, NYSE: SNP), better known as Sinopec.

Sinopec joined AP LNG in April 2011, taking a 15 percent equity stake and committing to purchasing 4.3 million metric tons of output from the project. In January 2012 the state-owned entity boosted its stake to 25 percent and committed to buying another 3.3 million metric tons per annum of LNG from the project through 2035.

The amended agreement increased Sinopec’s purchase commitment to 7.6 million metric tons per annum, the largest LNG supply deal in Australia.

AP LNG is a coal-seam gas-to-LNG project located on Australia’s east coast. The project is already supplying CSG to power stations to produce electricity. It also supplies CSG to major industrial customers, homes and businesses throughout Queensland. The LNG component of the project received final approval from Origin and ConocoPhillips in July 2011 and will is on pace to make its first delivery in 2015.

Origin Energy announced on Jun. 8, 2012, that AP LNG had secured final funding in the amount USD2.759 billion for a 16-year term from the Export-Import Bank of China for the downstream parts of the project, including the liquefaction facilities on Curtis Island near Gladstone in Queensland. This is part of a total USD8.5 billion project finance facility announced in May 2012 that includes the US Export-Import Bank and 15 commercial banks, with maturities of 16 and 17 years.

Origin reported Apr. 30, 2012, that production in the March was 8 percent higher than in the three months ended Dec. 31, 2011, as lower seasonal demand and shutdown of its BassGas operation for the Yolla Mid Life Enhancement Project was more than offset by increased production from Origin’s interest in AP LNG, increased production from the Otway and Taranaki (Kupe) basins following planned shutdowns in the December quarter and higher gas production from the Perth Basin.

Sales volume of 33 petajoules was 8 percent higher than the December 2011 quarter, though corresponding revenue was only 3 percent, higher natural gas sales were offset by decreased volumes of higher-value condensate and crude oil.

Production of 31 petajoules in the March 2012 quarter was 6 percent above year-ago levels, though sales volume was flat at 33 petajoules. Revenue on a year-over-year basis was up 2 percent, driven by higher commodity prices.

The most important recent development for Origin came with the announcement of the AP LNG financing, as management noted that the project remains “on schedule and on budget to deliver first gas in 2015.” Aggressive Holding Origin Energy, which is yielding 3.9 percent at current levels, is a buy under USD15.

Santos Ltd (ASX: STO, OTC: STOSF, ADR: SSLTY), for its part, has a strong track record of delivering its LNG projects within reasonable time and budget parameters. The stock is trading at a price that reflects not just a general discount relative to the energy sector but also attributes virtually zero value to its Gladstone LNG project. Gladstone is contracted to quality off-takers, and construction cost risk is strongly mitigated by fixed price downstream capital expenditures and fixed-price per unit upstream infrastructure CAPEX.

Based on the quality of the acreage where the coal-seam gas is located and Santos’ relationships with the local population, risks of cost overruns are greatly overstated. It’s also worth noting the company’s solid resource and infrastructure assets–including the Moomba gas field as well as Gladstone LNG–and the compelling strategic value these could represent to a larger player looking to consolidate or establish a presence in eastern Australia.

During the three months ended Mar. 31, 2012, Santos produced 12.4 million barrels of oil equivalent, an increase of 13 percent due primarily to output from new assets. Quarterly gas production of 53 petajoules was 6 percent above the corresponding period on new output from the Reindeer and Spar projects in Western Australia and Wortel in Indonesia and higher Cooper Basin production as the recovery from last year’s flooding continues.

Santos’ average gas price was up 24 percent from a year ago, driven by higher LNG prices, higher Indonesian gas prices and the commencement of production from Reindeer.

Crude oil production of 2.1 million barrels was 55 percent higher than the March quarter of 2011 following the commissioning of the Chim Sáo development in Vietnam in October 2011, combined with higher Cooper Basin oil production.

Sales revenue of USD754 million was 50 percent higher on higher oil and gas prices and higher sales volumes, combined with a change in the accounting treatment for the purchase and sale of third-party crude oil. Management maintained full-year production guidance at 51 million to 55 million barrels of oil equivalent.

Santos made its final investment decision on the USD490 million Fletcher Finucane oil project in the Carnarvon Basin, offshore Western Australia, with first oil expected in the second half of 2013. Management also reported production of first gas from its Wortel project in Indonesia at the end of January, with the project delivered on budget.

Santos also completed the first permanent concrete pour on Curtis Island for the foundations for the first train of Gladstone LNG. And fracture stimulation was underway as of Mar. 31, 2012, at Moomba-191, the company’s first dedicated vertical shale well in the Cooper Basin. Also reported was a gas discovery at Sangu-11 in Bangladesh, which has been tied into the Sangu facilities.

Gladstone LNG and Papua New Guinea LNG both remain on track for first LNG in 2014 and 2015 respectively.

There’s compelling upside here, and the stock is currently yielding 2.6 percent. Santos is a buy under USD13.50.

Woodside Petroleum Ltd (ASX: WPL, OTC: WOPEF, ADR: WOPEY) also looks good at these levels compared to the energy sector and the market at large.

Woodside will be repricing approximately 80 percent of the contracts related to its existing LNG customers over the next few years, with the potential for significant revenue upside.

The company will provide an update on Browse FEED tenders in the third quarter of 2012, though management noted at its May 28, 2012, investor day that upstream FEED tenders “look good.” Downstream FEED tenders for the James Price Point site will make the difference.

There is a risk as well that Shell will dispose of its remaining 24 percent stake in the company, but the last time it sold it was at AUD42 per share. This “overhang” could limit upside, but at current levels the Shell valuation looks good. Shell is not compelled to sell to raise cash but rather for strategic purposes.

Speculation has focused on a strategic investor such as a Chinese entity stepping forward. But the recent collaboration between Woodside and Shell to secure prospective exploration blocks in the offshore Canning Basin is evidence that the two companies remain comfortable working together in Australia.

Management has outlined a clear strategy to use forthcoming Pluto cash flows to expand its growth pipeline, which for a number of years has consisted of Browse LNG, Sunrise LNG, Pluto expansions and resource/infrastructure development to extend the life of its existing assets.

Woodside set its growth diversification strategy in motion with the recent sell-down of 15 percent of Browse LNG to the Mitsubishi-Mitsui joint venture. The risk is that management will focus on “blockbuster” opportunities similar to Pluto and Browse. CEO Peter Coleman, unlike his predecessors, has expressed a desire to focus on shorter-term projects that will generate cash flow “now” as opposed to years down the road, which suggests Woodside’s big deals are done.

With cash soon to start flowing from Pluto and a more conservative approach to growth opportunities, the prospect of “capital management” plans rise. This could include a buyback or a dividend increase.

Woodside reported a 20 percent increase in first-quarter 2012 revenue, as higher oil prices offset output declines due to cyclones. It has since fulfilled a promise made in its March quarter production update to produce LNG from Pluto “in the coming days.” Pluto will roughly double Woodside’s LNG exports.

Woodside also sold a stake in a gas permit to South Africa’s Sasol Ltd (South Africa: SOL, NYSE: SSL) that could contain resources to support an expansion of Pluto, and that it had discovered more oil at its Laverda prospect offshore the state of Western Australia.

Revenue for the three months to Mar. 31, 2012, was USD1.2 billion, up from USD998 million a year ago on higher oil and LNG prices. Quarterly production fell 10 percent to 14.1 million barrels of oil equivalent from 15.6 million after tropical cyclone activity in Western Australia temporarily shut in major projects, including the North West Shelf LNG terminal.

Woodside maintained its 2012 production guidance of 56 million to 60 million barrels of oil equivalent plus another 17 million to 21 million barrels of oil equivalent from Pluto. Woodside Petroleum, currently yielding 3.2 percent, is a buy under USD35.

AE Portfolio Aggressive Holding Oil Search (ASX: OSH, OTC: OISHF, ADR: OISHY) owns 29 percent of the Papua New Guinea LNG project. Operator ExxonMobil (NYSE: XOM) has the largest stake at 33.2 percent, the government of Papua New Guinea maintains a 19.6 percent stake, Santos owns 13.5 percent and JX Nippon Oil & Gas holds 4.7 percent.

PNG LNG is a high-quality project contracted to good counterparties. It’s operated by the very competent Exxon and with ample project finance a reasonable level of cost overruns can be covered, were they to happen. And the project remains on time and within a revised budget announced in December 2011.

LNG from the project is fully contracted to four key buyers, including TEPCO (1.8 million metric tons per annum) and Osaka Gas (1.5 Mmtpa) from Japan, CPC from Taiwan (1.2 Mmtpa) and China’s Sinopec (2.0 Mmtpa).

Based on recent gas discoveries via Oil Search’s drilling program in the area it’s also “probable,” according to Santos CEO David Knox, that a third train will be added the project, increasing its 6.6 million metric ton per annum capacity.

Oil Search’s total oil and gas production for the March 2012 quarter was 1.46 million barrels of oil equivalent, down from 1.64 million barrels of oil equivalent for the three months ended Dec. 31, 2011. Management noted during its presentation of final 2011 results that output during the first three months of 2012 would be impacted by a 16-day planned facilities shutdown for work related to PNG LNG.

This is the last of the major shutdowns, with two shorter shutdowns at a processing facility planned for the second and fourth quarters of 2012. Full-year 2012 production guidance remains unchanged at 6.2 million to 6.7 million barrels of oil equivalent.

Total oil sales for the quarter were 1.25 million barrels, slightly higher than oil production of 1.24 million barrels due to timing of shipments. Crude inventory awaiting sale fell from 0.20 million barrels at the end of December 2011 to 0.15 million at the end of March 2012.

The average realized oil price during the quarter was USD124.14 per barrel, 9 percent higher than in the fourth quarter of 2011; Oil Search remained unhedged throughout the period. Total operating revenue for the quarter was USD187.2 million, 7 percent lower than in the fourth quarter of 2011, reflecting lower sales, partly offset by the higher realized oil price and improved gas revenues.

Oil Search embarked on a major drilling program during the quarter, designed to evaluate the oil and gas resources in a number of its licenses in the PNG Highlands. The first of these wells, P’nyang South 1, south of the P’nyang gas field, discovered a substantial gas reservoir. The well was subsequently sidetracked in order to locate the gas-water contact. The sidetrack well has recently reached its target depth, resulting in a significant extension to the size of the known gas column.

This discovery could support a third train for PNG LNG.

As of Mar. 31, 2012, Oil Search held USD904.5 million in cash, excluding joint venture balances, while its revolving oil facility, with a commitment limit of USD232 million, remained undrawn. The company is sitting on total liquidity of USD1.14 billion. The PNG LNG project finance facility had USD2.014 billion drawn down at the end of March.

Oil Search, which currently yields 0.6 percent, is a strong buy for long-term growth and modest but stable income up to USD8.

Aggressive Holding WorleyParsons Ltd (ASX: WOR, OTC: WYGPF, ADR: WYGPY) is fast becoming known as a go-to engineer for energy due to its relationships with Super Oils ExxonMobil and Chevron on projects in all corners of the globe.

The company recently won a AUD235 million contract for construction management services for the downstream segment of Chevron’s Wheatstone LNG project. The onshore facility is located at Ashburton North, near Onslow in Western Australia’s Pilbara region. The foundation project will include two LNG trains with a combined capacity of 8.9 million metric ton per annum and a domestic gas plant.

WorleyParson’s construction teams will be located in Perth, Houston, onsite in Ashburton North and in selected fabrication yards in Asia.

The company has also been engaged on BG Group Plc’s (London: BG/, OTC: BRGXF, ADR: BRGYY Queensland LNG project, Woodside’s Pluto LNG project and PowerGas Ltd’s Singapore LNG terminal.

WorleyParsons has also recently won work for TransCanada Corp (TSX: TRP, NYSE: TRP) to handle brownfield fabrication and construction at the Hardisty Terminal A and the balance of plant construction at Terminal B of the project, part of the Keystone Pipeline System in Canada and the US. Mongolyn Alt Corp awarded the firm an Engineering, Procurement and Construction Management (EPCM) for the Tsagaan Suvarga copper-molybdenum concentrator project in Mongolia.

ExxonMobil Canada Properties has engaged WorleyParsons to do Engineering, Procurement and Construction (EPC) work for the heavy-oil Hebron project in Canada, and Joint Operations–which includes Kuwait Gulf Oil Company and Saudi Arabian Chevron–engaged the company for EPCM services to maintain and boost production from the onshore oil fields in the partitioned zone between the countries of Kuwait and Saudi Arabia.

WorleyParsons reported strong growth in during its fiscal 2012 first half, and management said it expects “to achieve good growth in fiscal year 2012 compared to fiscal year 2011 underlying earnings.”

The company reported first-half fiscal 2012 revenue growth of 17 percent to AUD3.3 billion, while statutory net profit after tax (NPAT) came in 18 percent higher at AUD152 million. Earnings grew across all operating sectors, with particular strength in Australia, Canada and the US geographically, though management noted in a statement that “productivity, cost increases and project delays are currently impacting margins.”

WorleyParsons, which boosted its interim dividend by 11 percent, is a buy under USD30.

On the conservative side of the AE Portfolio, charter recommendations APA Group (ASX: APA, OTC: APAJF) and Envestra Ltd (ASX: ENV, OTC: EVSRF) dominate the domestic natural gas pipeline and infrastructure industry.

APA owns and operates the Dandenong LNG Storage facility, part of Victoria Transmission System. In May 2010 APA entered an agreement to supply 100 metric tons a day of LNG for 17 years to BOC Ltd, part of Germany-based The Linde Group, as part of a long-term, AUD200 million plan to build an “LNG Superhighway” along Australia’s east coast.

BOC subsequently contracted with APA for up to 50 metric tons per day of the Dandenong plant’s capacity for use in the heavy vehicle market. BOC will convert natural gas to LNG, and APA will provide LNG storage and loading facilities for BOC and other market participants.

This 17-year extension of the companies’ existing contract was the first step in a process that continued in February 2011 with the opening of BOC’s AUD66 million micro-LNG plant in Tasmania. In early 2012 BOC completed the first link in the LNG Superhighway.

APA is the largest transporter of natural gas across Australia; this owner-operator of pipelines, storage facilities and a wind farm pushes about half of Australia’s annual gas use through its infrastructure.

The company’s effort to acquire the 79.3 percent of Hastings Diversified Utilities Fund (ASX: HDF) it doesn’t already own continues, as management remains keen on realizing the potential of connecting its assets to “one or more” of APA’s assets, completing what it sees is a “natural fit” in its effort “to provide more flexible and tailored services” for its existing customers.

In mid-December 2011 APA offered AUD0.50 in cash and 0.326 of its shares for each of the shares of Hastings it doesn’t own. According to a Jun. 13, 2012, statement released by Hastings, the Australian Competition and Consumer Commission has extended its decision date on the proposed deal, to Jul. 19, 2012.

APA Group, which is yielding 6.9 percent at current levels, is a strong buy up to USD5.50.

Envestra, for its part, owns about 22,200 kilometers of natural gas distribution networks and 1,120 kilometers of transmission pipelines, serving over 1.1 million household and business consumers in South Australia, Victoria, Queensland, New South Wales and the Northern Territory.

The company generates its revenue by charging retailers to transport natural gas through these networks.

Envestra listed on the Australian Securities Exchange in August 1997, but its origins date back almost 150 years to the gas distribution networks of the former South Australian and Brisbane Gas Companies and the Gas and Fuel Corporation of Victoria.

The South Australian and Brisbane Gas Companies, which started operating in 1861 and 1864 respectively, were owned by Boral Ltd (ASX: BLD, OTC: BOALF, ADR: BOALY). In early 1997 Boral sold the distribution networks of these companies by floating Envestra as a new company, which acquired these assets for AUD900 million.

In March 1999 Envestra acquired part of the former Gas and Fuel Corporation’s distribution network in Victoria for AUD1.2 billion, bringing the total value of the company’s assets to AUD2.1 billion. Today Envestra has assets of about AUD3 billion.

On Jul. 2, 2007, the contract to operate, maintain and expand Envestra’s distribution networks was transferred to APA Asset Management, part of APA Group, which owns 30.8 percent of the company.

The company announced a dividend of AUD0.029 per share along with its results for the first half of fiscal 2012. The dividend paid on Apr. 27, 2012, to shareholders of record as of Mar. 26, 2012, brought Envestra’s payout for 2011-12 to AUD0.058 from AUD0.055, an increase of 5.5 percent from the prior corresponding period. Management also boosted its fiscal 2012 full-year net profit after tax (NPAT) guidance to around AUD70 million from a previous estimate of AUD60 million.

Envestra posted a 16 percent increase in NPAT to AUD40.7 million for the first half of fiscal 2012, as revenue grew 8 percent to AUD243.9 million. According to management, “The profit increase reflects increased tariffs applying from July 1, 2011, as a result of the South Australian and Queensland regulatory reviews.”

Envestra, which is yielding 7.2 percent at these levels, is a strong buy under USD0.80.