Sheikh Kloppers and BHP's 'new Saudi'

Australia needs to wake up and realise what's happening in the United States is not fantasy. Fracking technology has enabled the energy equivalent of Saudi Arabia to be discovered in America. That's why the cost blowout at Chevron's Gorgon liquefied natural gas project is so dangerous to Australia – it reinforces the chilling message that this is a difficult and high cost country to operate in.

The new "Saudi” in the US is far more important than the US fiscal cliff and will hit existing energy producers like the Middle East and Australia. The US shale discovery has already contributed to the demise of our thermal coal and is now set to contain future gas developments.

If you add the oil reserves of Iraq to the potential supplies of hydrocarbons, the global energy outlook is transformed. Oil, gas and coal prices will be contained and go through some bad periods. High cost alternatives like renewables or even uranium will become even less economic. In particular, the US will show it can lower its carbon count by switching from coal to gas. It's highly likely that Australia also has huge shale gas reserves, but the energy policy morass in Canberra and our high costs will prevent development and we could have gas shortages in eastern states.

But guess what: one of the Sheiks in the US "Saudi” is none other than BHP Billiton chief executive, Marius Kloppers. 

In Sheik Kloppers' home country of Australia, the mining boss is thought to be a bit of dunce for supposedly paying too much for some of the prized fields in the new kingdom. But a remarkable ongoing series from our US correspondent Alex Liddington-Cox is revealing how Kloppers secured a key role in the "new Saudi” for BHP (BHP's new shale swagger, November 13).

It's true that US gas prices fell after BHP purchased the US assets, forcing write-downs on the $20 billion acquisition. But in response, BHP temporarily shifted to liquids and then found more reserves.

I use the Saudi and Sheikh analogies to grab your attention, because the Liddington-Cox message for Australia is that American companies are not only setting up processing facilities to take advantage of the shale gas, but basing their developments on gas price projections that are very profitable to BHP.

And because BHP can move from shale gas to shale liquids it can to some extent dictate the terms. Right now there are a lot of US gas producers, but many are small, high-cost, and are going to go out of business. BHP might have paid top dollar, but Kloppers bought a quality asset.

My people in the US predict that while some shale gas that will be exported as LNG in the short to medium term, the US will use environmental laws to contain that export and ensure US gas is used in America to transform manufacturing and later transport. The real impact on Australia is that China and Japan will both be affected by the resurgence in US manufacturing, based on low cost energy, and this will affect our medium-term gas prices.

That's why cost blowouts at Gorgon are so serious.