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Woodside chalks up win in LNG war

As exploration and production of natural gas deposits around the world grows, the battle lines are being drawn in the war to supply Liquid Natural Gas (LNG) to some of the largest energy consuming countries. The impact of large natural gas projects being conducted in Australia has pushed us into the top spot as the largest supplier of LNG to Japan, ahead of previous number one Qatar.

Australia exported 18.2% of Japan’s 2012 LNG consumption, equivalent to 15.9 million tonnes of gas according to Energy Quest’s Energy Quarterly report. The news was especially good for major gas producer Woodside Petroleum Limited (ASX: WPL), whose North West Shelf field and recently completed Pluto project were noted among the reasons for the higher export volumes. What’s more, the report placed Woodside Petroleum ahead of BHP Billiton Limited (ASX: BHP) as the country’s new largest petroleum producer.

Japan is currently the world’s largest buyer of LNG, and with an increasing number of natural gas projects being planned and carried out in Australia it is a promising sign for investors. For Woodside, which last year saw first production from the company’s Pluto LNG project, attention now moves to the company’s other significant projects including the Browse LNG Project 60 km north of Broome in Western Australia.

Australia’s dominance in Japan will also be of some relief to Origin Energy Limited (ASX: ORG) taking part in the $24.7 billion APLNG project which has recently suffered cost over-runs and is scheduled for first production in 2015. In 2012 Australia’s total LNG exports were up 11% to a record 21.8 million tonnes the value of which grew 25% to $13.8 billion. This makes LNG one of the country’s major exports, comprising about 9% of total exports and ahead of agricultural production which constitutes about 5%.

Foolish takeaway

While the news of dominance in Japan is positive, to remain in a competitive position exporting to the Asia Pacific Australia’s natural gas producers, including Santos Limited (ASX: STO) and Oil Search Limited (ASX: OSH), will need to be critical of the cost of production. With a number of LNG projects facing cost over-runs and cheaper production costs in competing countries, failure to do so will ebb away profit margins and detract from investor returns.

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The Motley Fool’s purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead.  This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. Motley Fool contributor Regan Pearson doesn’t own shares in any companies mentioned.

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