BHP to expand in US shale on forecast of surging global demand

BHP Billiton Ltd. (BHP), the world’s biggest mining company, signaled it will expand in the shale oil and gas industry in the U.S., forecasting global commodity demand will jump 75 percent over the next 15 years.

“It’s my intention to make us hugely proficient, if not one of the leaders in the shale gas and oil business,” Andrew Mackenzie, chief executive officer of the Melbourne-based company, said today in an interview. “Which means if there are opportunities elsewhere we’ll be able to consider them with a lot of precision and interest.”

China, the biggest consumer of metals and energy, will continue to fuel demand for commodities as 250 million people move into cities, said Mackenzie, 56, who succeeded Marius Kloppers in May. BHP spent $20 billion in 2011 on shale assets in the U.S., joining rivals including Exxon Mobil Corp. and China Petrochemical Corp. in seeking to tap surging energy demand that’s driving an industrial revival.

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BHP slipped 2.0 percent to A$34.90 at the close of trading in Sydney. It’s dropped 5.9 percent this year.

Premier Li Keqiang is driving reform of the Chinese economy in a bid to maintain growth while reining in financial risks and controlling local government debt. China’s policy makers have this year rolled out targeted measures to support the economy, including boosting infrastructure, tax cuts and help for small companies.

“I’m on the whole reasonably positive about China,” Mackenzie said. “They’re doing a good job at rebalancing and moving more towards a consumption-based economy and at the same time thinking more deeply how they can make more efficient use of the resources that we sell to them and others.”

Asian Demand

Asian energy demand, including from China, is helping drive the development of about $180 billion of liquefied natural gas projects in Australia, BHP’s home country. The nation is forecast to surpass Qatar as the world’s largest exporter of LNG by the end of the decade.

“We’re not yet investing in export terminals in the U.S., we’re simply producing the gas,” Mackenzie said. “But I do believe that Australian LNG will face stiff competition from U.S., Canada and Africa to supply the next tranche of LNG into Asia.”

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The U.S. Energy Department is weighing 20 applications for LNG export terminals. Hydraulic fracturing of shale rock formations from Texas to West Virginia has boosted supplies of gas in the U.S., helping the nation overtake Russia as the world’s biggest producer of the fuel in 2009.

BHP, due to report earnings on Aug. 20, expects annual economic growth in China to moderate toward 6 percent over the next two years, Chief Financial Officer Graham Kerr said in April. China, whose economy grew 7.9 percent last year, the slowest since 2008, accounts for 30 percent of BHP’s sales.

Potash Benefit

China’s changing economy would benefit demand for natural gas, copper, coal and food production, which involved potash, Mackenzie said. BHP is continuing a study of its Jansen potash project in Canada. The operation may cost $16 billion to build, according to Citigroup Inc.

Russia’s OAO Uralkali, the largest potash producer, July 30 quit a venture that controlled about 43 percent of global exports and signaled prices may fall by as much as a quarter. BHP’s Jansen project in Canada contains a 3 billion-metric-ton resource. The break-up of Uralkali’s marketing partnership may signal “game over” for BHP’s plans to start producing the crop nutrient, Citigroup said in July.

Free Market

“We’ve always been clear that we think that the market is likely to evolve into more of a free market and be less driven by what some would call cartels,” Mackenzie said. “We continue to take an interest in Saskatchewan because we believe we have some great ore bodies there and it’s also part of our diversification strategy.”

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Mackenzie’s predecessor, Marius Kloppers, in August last year put major project approvals, including Jansen, on hold after revenues fell. Falling profits also prompted the company to sell assets, netting $1.63 billion for its stake in the Browse LNG project in Australia last year to PetroChina Co. BHP and Rio Tinto Group are leading a global push for asset disposals as companies focus on their most profitable operations.

“We can further simplify the portfolio,” said Mackenzie. “That simplification process of really understanding how we can create even more focus is very much part of my productivity agenda.”

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