July 3, 2002 BUSINESS AND INVESTING > THE SPECULATOR
SPECULATOR: GASBAGGING
Impatient tax loss sellers battered the share prices of a wide range of stocks last week including the ambitious petrochemicals hopeful Methanol Australia Ltd. Having battled to hold 10¢ in recent months, the company's shares fell to as low as 8.6¢ last week as tired punters quit the stock. Yet the company's more optimistic backers have hopes of a serious turnaround in Methanol's fortunes within a month if a major Australian petroleum company exercises an option to join in developing an offshore methanol plant based on one of Australia's largest natural gas resources.
To go back a few years ... in 1996, a consortium comprising Shell (85%) and the small Australian company Timor Oil (15%) discovered the Evans Shoal gasfield in the Timor Sea. This resulted in a dilemma, however. The good news: the gasfield is entirely within Australian waters 275km north of Darwin and recoverable reserves are estimated at between 6.75 trillion to 15 trillion cubic feet. The bad news: the gas contains up to 25% carbon dioxide making the liquid natural gas component unsuitable for export and thus blocking any early development of the discovery.
The potential solution is to convert the natural gas and its high carbon dioxide content into methanol (methyl alcohol) which has a wide range of uses including the manufacture of silicone, paints and resins, adhesives and as an automotive fuel enhancer.
As a first step, Timor Oil quit its interest in the gasfield and was reconstructed as Methanol Australia with rights to develop a methanol project on the field and further rights to development of a future LNG operation. The gasfield is now owned 50% by Shell Development (having recovered the $88.5m it invested), 40% by Santos and 10% by Osaka Gas of Japan. Santos also owns 17% of Methanol's 122 million shares, of which 40 million remain untradeable in a trust and are yet to be issued for cash to future beneficial owners.
About 5km south of the gasfield is a hidden reef system known as the Tassie Shoal, covering some 1000 hectares 13m to 15m beneath the surface of the sea. Methanol proposes building in Thailand a large concrete island (165m x 85m) then barging it down to sit on the reef as a production and storage platform for feedstock piped a mere 5km from gasfield to plant. After production begins in 2006, plans call for a second "island" by 2010 at a total cost of more than $2bn with annual export revenues of $750m and a project that could continue on known gas reserves for 100 years.
Methanol has acquired exclusive rights until the end of 2006 from UK-based Davy Process Technology for methanol plants in Australasia, Papua New Guinea and Indonesia. The company expects to find markets in north Asia, where Chemical Market Associates Inc of the US forecasts a shortfall of supply over demand of 2.9 million tonnes a year by 2007. Methanol managing director Chris Hart claims his will be a very low cost producer with cash costs well under $US50 a tonne.
The company's major competitor is seen as Methanex of Canada, with existing production in Canada, Chile and New Zealand. The New Zealand operations (1.9 million tonnes a year) is being wound down due to declining feedstock gas and replaced with the development of a plant on the Burrup Peninsula on the north-west coast of Western Australia.
Methanol has completed an environmental impact study that went on public display in Melbourne on June 17 and will stay on display until July 15. Santos then has 15 days in which to exercise an option to pay $2.5m for a 25% participation in the junior's methanol project and a similar amount for the lower-rated LNG hopes.
A positive response from Santos is not a certainty, but if the project got the nod it, would have to help Methanol's share price. At 8.6¢, it's capitalised at $10.5m and has more than $2m cash in the bank. I'll try to buy some under 9¢.
Meanwhile, in our column on Consolidated Broken Hill (Mining history, June 18) I neglected to record that the locally backed listed company Minerals Mining and Metallurgy worked remnant parts of the old BHP and BH South workings between 1972-85. Thanks for jogging my memory to Bernard Martin, former director of MMM.
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