Will gas overtake iron ore as BHP’s biggest earner?

Whilst mining heavyweight BHP Billiton (ASX: BHP) currently makes most of its money from its iron ore, copper and petroleum divisions, the company’s CEO, Andrew Mackenzie, has stated that he can see a point in the future where gas will become the miner’s biggest earner.

Following a decade of heavy demand from China, iron ore is the top contributor for earnings for BHP. Like others in the industry, including key competitors Rio Tinto (ASX: RIO) and Fortescue Metals Group (ASX: FMG), BHP is heavily ramping up its production levels of the steelmaking ingredient as it sees demand remaining strong well into the future.

However, depending on China and “the choices that the world makes in terms of energy” as well as the “competitiveness of Australian gas versus gas elsewhere”, Mackenzie can see gas becoming a stronger earner for the miner.

Whilst the miner is interested in unconventional onshore gas, following its shale expansion in the United States, BHP, together with its joint venture partner ExxonMobil (NYSE: XOM), recently received approval from the federal government to build the world’s largest floating liquefied natural gas (FLNG) operation in the Scarborough gas field, located in north Western Australia.

Mackenzie referred most of the questions regarding the project to Exxon, the project’s operator, which hopes to begin production by 2020/21.

In the meantime however, BHP will heavily focus on expanding its potash operations, which could quite possibly become the company’s ‘fifth pillar’. The company will invest US$2.6 billion in its Canadian Jansen project whilst exploration results in nearby areas also revealed plenty of potential for the group.

Mackenzie said, “For the long-term we’re thinking about possibilities in potash, copper is still a very interesting metal to invest in and our portfolio between strong minerals and strong oil and gas is something we’d like to maintain.”

Foolish takeaway

Following two years of declining value, investors are once again getting on board with the miners as confidence returns to the sector. Whilst the miners are setting themselves up for more sustainable futures, the shares still pose as risky prospects given the level of volatility in the sector, suggesting that lower-risk investors should look elsewhere for investment ideas.

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Motley Fool contributor Ryan Newman does not own shares in any of the companies mentioned.

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