If projects currently underway proceed as planned, Australia’s LNG exports are likely to increase more than three-fold over the next five years. In addition to committed projects, a number of other developments are being evaluated that could see LNG exports approach coal and iron ore in terms of their contribution to total export earnings over the coming decade.

Australia exported 19.2 million metric tons of LNG worth a total of AUD11.1 billion (USD10.8 billion) in 2011, according to Australia’s Bureau of Resources and Energy. There are currently three LNG projects in operation, with total capacity of 24.2 million metric tons per annum: the Darwin LNG plant, a project that includes Australia’s Santos Ltd (ASX: STO, OTC: STOSF, ADR: SSLTY) as well as Tokyo Electric Power (Tokyo: 9501, OTC: TKECF, ADR: TKECY) and Tokyo Gas (Tokyo: 9531, OTC: TKGSF, ADR: TKGSY) among its investors, the North West Shelf LNG project, which includes Australia-based BHP Billiton Ltd (ASX: BHP, NYSE: BHP) and Woodside Petroleum Ltd (ASX: WPL, OTC: WOPEF, ADR: WOPEY) as well as Japan’s Mitsui & Co Ltd (Tokyo: 8031,  OTC: MITSF, ADR: MITSY) and Mitsubishi Corp (Tokyo: 8058, OTC: MSBHF, ADR: MSBHY), and Woodside’s Pluto project in Western Australia.

And the development pipeline is vast, with approximately AUD175 billion (USD170 billion) worth of new projects underway. Three large-scale LNG projects in Western Australia, including Chevron’s (NYSE: CVX) Gorgon and Wheatstone projects and four coal-seam gas (CSG) LNG projects, which include the Santos-led Gladstone LNG plant, and BG Group Plc’s (London: BG, OTC: BRGXF, ADR: BRGYY) Queensland Curtis LNG plant, are expected to come online in the next five years.

This will add almost 59 million metric tons per annum to existing capacity, taking Australia’s LNG capacity to about 83 million metric tons. This increase in output is expected to make its way to Asia, especially to Japan and Korea. China’s and India’s growing demand for power will also make them look for alternatives to coal.

From an investor’s point of view, the LNG industry is unusual in that positive market conditions don’t always translate into windfall profits.

More so than most other commodities, the LNG sector requires a symbiosis between producers and customers. The huge upfront investment required for LNG projects means decades-long sales contracts are needed to support the development, and these relationships generally foster sense of cooperation rather than opportunism between LNG buyers and sellers.

Japanese companies have invested heavily Australia-based LNG projects to ensure supply continuity. As previously, TEPCO and Tokyo Gas are involved in Darwin. And in addition to their involvement in the North West Shelf project, in May 2012 Mitsui and Mitsubishi, through their 50-50 joint venture Japan Australia LNG, bought a 14.7 percent stake in Woodside’s Browse Project in Western Australia.

Japan-based Inpex Corp (Tokyo: 1605, OTC: IPXHF, ADR: IPXHY) holds a 76 percent stake in the Icthys project in Western Australia. France-based Total SA (France: FP, NYSE: TOT) holds the remaining 24 percent.

China, too, is investing in these projects. Australia Pacific LNG is a joint venture among AE Portfolio Aggressive Holding Origin Energy Ltd (ASX: ORG, OTC: OGFGF, ADR: OGFGY, ConocoPhillips and China Petroleum & Chemical Corp (Hong Kong: 386, NYSE: SNP), better known as Sinopec.

Sinopec joined AP LNG in April 2011, taking a 15 percent equity stake and committing to purchasing 4.3 million metric tons of output from the project. In January 2012 the state-owned entity boosted its stake to 25 percent and committed to buying another 3.3 million metric tons per annum of LNG from the project through 2035.

The amended agreement increased Sinopec’s purchase commitment to 7.6 million metric tons per annum, the largest LNG supply deal in Australia.

AP LNG is a coal-seam gas-to-LNG project located on Australia’s east coast. The project is already supplying CSG to power stations to produce electricity. It also supplies CSG to major industrial customers, homes and businesses throughout Queensland. The LNG component of the project received final approval from Origin and ConocoPhillips in July 2011 and will is on pace to make its first delivery in 2015.

Origin Energy announced on Jun. 8, 2012, that AP LNG had secured final funding in the amount USD2.759 billion for a 16-year term from the Export-Import Bank of China for the downstream parts of the project, including the liquefaction facilities on Curtis Island near Gladstone in Queensland. This is part of a total USD8.5 billion project finance facility announced in May 2012 that includes the US Export-Import Bank and 15 commercial banks, with maturities of 16 and 17 years.

Origin reported Apr. 30, 2012, that production in the March was 8 percent higher than in the three months ended Dec. 31, 2011, as lower seasonal demand and shutdown of its BassGas operation for the Yolla Mid Life Enhancement Project was more than offset by increased production from Origin’s interest in AP LNG, increased production from the Otway and Taranaki (Kupe) basins following planned shutdowns in the December quarter and higher gas production from the Perth Basin.

Sales volume of 33 petajoules was 8 percent higher than the December 2011 quarter, though corresponding revenue was only 3 percent, higher natural gas sales were offset by decreased volumes of higher-value condensate and crude oil.

Production of 31 petajoules in the March 2012 quarter was 6 percent above year-ago levels, though sales volume was flat at 33 petajoules. Revenue on a year-over-year basis was up 2 percent, driven by higher commodity prices.

The most important recent development for Origin came with the announcement of the AP LNG financing, as management noted that the project remains “on schedule and on budget to deliver first gas in 2015.” Aggressive Holding Origin Energy, which is yielding 3.9 percent at current levels, is a buy under USD15.

Santos Ltd (ASX: STO, OTC: STOSF, ADR: SSLTY), for its part, has a strong track record of delivering its LNG projects within reasonable time and budget parameters. The stock is trading at a price that reflects not just a general discount relative to the energy sector but also attributes virtually zero value to its Gladstone LNG project. Gladstone is contracted to quality off-takers, and construction cost risk is strongly mitigated by fixed price downstream capital expenditures and fixed-price per unit upstream infrastructure CAPEX.

Based on the quality of the acreage where the coal-seam gas is located and Santos’ relationships with the local population, risks of cost overruns are greatly overstated. It’s also worth noting the company’s solid resource and infrastructure assets–including the Moomba gas field as well as Gladstone LNG–and the compelling strategic value these could represent to a larger player looking to consolidate or establish a presence in eastern Australia.

During the three months ended Mar. 31, 2012, Santos produced 12.4 million barrels of oil equivalent, an increase of 13 percent due primarily to output from new assets. Quarterly gas production of 53 petajoules was 6 percent above the corresponding period on new output from the Reindeer and Spar projects in Western Australia and Wortel in Indonesia and higher Cooper Basin production as the recovery from last year’s flooding continues.

Santos’ average gas price was up 24 percent from a year ago, driven by higher LNG prices, higher Indonesian gas prices and the commencement of production from Reindeer.

Crude oil production of 2.1 million barrels was 55 percent higher than the March quarter of 2011 following the commissioning of the Chim Sáo development in Vietnam in October 2011, combined with higher Cooper Basin oil production.

Sales revenue of USD754 million was 50 percent higher on higher oil and gas prices and higher sales volumes, combined with a change in the accounting treatment for the purchase and sale of third-party crude oil. Management maintained full-year production guidance at 51 million to 55 million barrels of oil equivalent.

Santos made its final investment decision on the USD490 million Fletcher Finucane oil project in the Carnarvon Basin, offshore Western Australia, with first oil expected in the second half of 2013. Management also reported production of first gas from its Wortel project in Indonesia at the end of January, with the project delivered on budget.

Santos also completed the first permanent concrete pour on Curtis Island for the foundations for the first train of Gladstone LNG. And fracture stimulation was underway as of Mar. 31, 2012, at Moomba-191, the company’s first dedicated vertical shale well in the Cooper Basin. Also reported was a gas discovery at Sangu-11 in Bangladesh, which has been tied into the Sangu facilities.

Gladstone LNG and Papua New Guinea LNG both remain on track for first LNG in 2014 and 2015 respectively.

There’s compelling upside here, and the stock is currently yielding 2.6 percent. Santos is a buy under USD13.50.

Woodside Petroleum Ltd (ASX: WPL, OTC: WOPEF, ADR: WOPEY) also looks good at these levels compared to the energy sector and the market at large.

Woodside will be repricing approximately 80 percent of the contracts related to its existing LNG customers over the next few years, with the potential for significant revenue upside.

The company will provide an update on Browse FEED tenders in the third quarter of 2012, though management noted at its May 28, 2012, investor day that upstream FEED tenders “look good.” Downstream FEED tenders for the James Price Point site will make the difference.

There is a risk as well that Shell will dispose of its remaining 24 percent stake in the company, but the last time it sold it was at AUD42 per share. This “overhang” could limit upside, but at current levels the Shell valuation looks good. Shell is not compelled to sell to raise cash but rather for strategic purposes.

Speculation has focused on a strategic investor such as a Chinese entity stepping forward. But the recent collaboration between Woodside and Shell to secure prospective exploration blocks in the offshore Canning Basin is evidence that the two companies remain comfortable working together in Australia.

Management has outlined a clear strategy to use forthcoming Pluto cash flows to expand its growth pipeline, which for a number of years has consisted of Browse LNG, Sunrise LNG, Pluto expansions and resource/infrastructure development to extend the life of its existing assets.

Woodside set its growth diversification strategy in motion with the recent sell-down of 15 percent of Browse LNG to the Mitsubishi-Mitsui joint venture. The risk is that management will focus on “blockbuster” opportunities similar to Pluto and Browse. CEO Peter Coleman, unlike his predecessors, has expressed a desire to focus on shorter-term projects that will generate cash flow “now” as opposed to years down the road, which suggests Woodside’s big deals are done.

With cash soon to start flowing from Pluto and a more conservative approach to growth opportunities, the prospect of “capital management” plans rise. This could include a buyback or a dividend increase.

Woodside reported a 20 percent increase in first-quarter 2012 revenue, as higher oil prices offset output declines due to cyclones. It has since fulfilled a promise made in its March quarter production update to produce LNG from Pluto “in the coming days.” Pluto will roughly double Woodside’s LNG exports.

Woodside also sold a stake in a gas permit to South Africa’s Sasol Ltd (South Africa: SOL, NYSE: SSL) that could contain resources to support an expansion of Pluto, and that it had discovered more oil at its Laverda prospect offshore the state of Western Australia.

Revenue for the three months to Mar. 31, 2012, was USD1.2 billion, up from USD998 million a year ago on higher oil and LNG prices. Quarterly production fell 10 percent to 14.1 million barrels of oil equivalent from 15.6 million after tropical cyclone activity in Western Australia temporarily shut in major projects, including the North West Shelf LNG terminal.

Woodside maintained its 2012 production guidance of 56 million to 60 million barrels of oil equivalent plus another 17 million to 21 million barrels of oil equivalent from Pluto. Woodside Petroleum, currently yielding 3.2 percent, is a buy under USD35.

AE Portfolio Aggressive Holding Oil Search (ASX: OSH, OTC: OISHF, ADR: OISHY) owns 29 percent of the Papua New Guinea LNG project. Operator ExxonMobil (NYSE: XOM) has the largest stake at 33.2 percent, the government of Papua New Guinea maintains a 19.6 percent stake, Santos owns 13.5 percent and JX Nippon Oil & Gas holds 4.7 percent.

PNG LNG is a high-quality project contracted to good counterparties. It’s operated by the very competent Exxon and with ample project finance a reasonable level of cost overruns can be covered, were they to happen. And the project remains on time and within a revised budget announced in December 2011.

LNG from the project is fully contracted to four key buyers, including TEPCO (1.8 million metric tons per annum) and Osaka Gas (1.5 Mmtpa) from Japan, CPC from Taiwan (1.2 Mmtpa) and China’s Sinopec (2.0 Mmtpa).

Based on recent gas discoveries via Oil Search’s drilling program in the area it’s also “probable,” according to Santos CEO David Knox, that a third train will be added the project, increasing its 6.6 million metric ton per annum capacity.

Oil Search’s total oil and gas production for the March 2012 quarter was 1.46 million barrels of oil equivalent, down from 1.64 million barrels of oil equivalent for the three months ended Dec. 31, 2011. Management noted during its presentation of final 2011 results that output during the first three months of 2012 would be impacted by a 16-day planned facilities shutdown for work related to PNG LNG.

This is the last of the major shutdowns, with two shorter shutdowns at a processing facility planned for the second and fourth quarters of 2012. Full-year 2012 production guidance remains unchanged at 6.2 million to 6.7 million barrels of oil equivalent.

Total oil sales for the quarter were 1.25 million barrels, slightly higher than oil production of 1.24 million barrels due to timing of shipments. Crude inventory awaiting sale fell from 0.20 million barrels at the end of December 2011 to 0.15 million at the end of March 2012.

The average realized oil price during the quarter was USD124.14 per barrel, 9 percent higher than in the fourth quarter of 2011; Oil Search remained unhedged throughout the period. Total operating revenue for the quarter was USD187.2 million, 7 percent lower than in the fourth quarter of 2011, reflecting lower sales, partly offset by the higher realized oil price and improved gas revenues.

Oil Search embarked on a major drilling program during the quarter, designed to evaluate the oil and gas resources in a number of its licenses in the PNG Highlands. The first of these wells, P’nyang South 1, south of the P’nyang gas field, discovered a substantial gas reservoir. The well was subsequently sidetracked in order to locate the gas-water contact. The sidetrack well has recently reached its target depth, resulting in a significant extension to the size of the known gas column.

This discovery could support a third train for PNG LNG.

As of Mar. 31, 2012, Oil Search held USD904.5 million in cash, excluding joint venture balances, while its revolving oil facility, with a commitment limit of USD232 million, remained undrawn. The company is sitting on total liquidity of USD1.14 billion. The PNG LNG project finance facility had USD2.014 billion drawn down at the end of March.

Oil Search, which currently yields 0.6 percent, is a strong buy for long-term growth and modest but stable income up to USD8.

Aggressive Holding WorleyParsons Ltd (ASX: WOR, OTC: WYGPF, ADR: WYGPY) is fast becoming known as a go-to engineer for energy due to its relationships with Super Oils ExxonMobil and Chevron on projects in all corners of the globe.

The company recently won a AUD235 million contract for construction management services for the downstream segment of Chevron’s Wheatstone LNG project. The onshore facility is located at Ashburton North, near Onslow in Western Australia’s Pilbara region. The foundation project will include two LNG trains with a combined capacity of 8.9 million metric ton per annum and a domestic gas plant.

WorleyParson’s construction teams will be located in Perth, Houston, onsite in Ashburton North and in selected fabrication yards in Asia.

The company has also been engaged on BG Group Plc’s (London: BG/, OTC: BRGXF, ADR: BRGYY Queensland LNG project, Woodside’s Pluto LNG project and PowerGas Ltd’s Singapore LNG terminal.

WorleyParsons has also recently won work for TransCanada Corp (TSX: TRP, NYSE: TRP) to handle brownfield fabrication and construction at the Hardisty Terminal A and the balance of plant construction at Terminal B of the project, part of the Keystone Pipeline System in Canada and the US. Mongolyn Alt Corp awarded the firm an Engineering, Procurement and Construction Management (EPCM) for the Tsagaan Suvarga copper-molybdenum concentrator project in Mongolia.

ExxonMobil Canada Properties has engaged WorleyParsons to do Engineering, Procurement and Construction (EPC) work for the heavy-oil Hebron project in Canada, and Joint Operations–which includes Kuwait Gulf Oil Company and Saudi Arabian Chevron–engaged the company for EPCM services to maintain and boost production from the onshore oil fields in the partitioned zone between the countries of Kuwait and Saudi Arabia.

WorleyParsons reported strong growth in during its fiscal 2012 first half, and management said it expects “to achieve good growth in fiscal year 2012 compared to fiscal year 2011 underlying earnings.”

The company reported first-half fiscal 2012 revenue growth of 17 percent to AUD3.3 billion, while statutory net profit after tax (NPAT) came in 18 percent higher at AUD152 million. Earnings grew across all operating sectors, with particular strength in Australia, Canada and the US geographically, though management noted in a statement that “productivity, cost increases and project delays are currently impacting margins.”

WorleyParsons, which boosted its interim dividend by 11 percent, is a buy under USD30.

On the conservative side of the AE Portfolio, charter recommendations APA Group (ASX: APA, OTC: APAJF) and Envestra Ltd (ASX: ENV, OTC: EVSRF) dominate the domestic natural gas pipeline and infrastructure industry.

APA owns and operates the Dandenong LNG Storage facility, part of Victoria Transmission System. In May 2010 APA entered an agreement to supply 100 metric tons a day of LNG for 17 years to BOC Ltd, part of Germany-based The Linde Group, as part of a long-term, AUD200 million plan to build an “LNG Superhighway” along Australia’s east coast.

BOC subsequently contracted with APA for up to 50 metric tons per day of the Dandenong plant’s capacity for use in the heavy vehicle market. BOC will convert natural gas to LNG, and APA will provide LNG storage and loading facilities for BOC and other market participants.

This 17-year extension of the companies’ existing contract was the first step in a process that continued in February 2011 with the opening of BOC’s AUD66 million micro-LNG plant in Tasmania. In early 2012 BOC completed the first link in the LNG Superhighway.

APA is the largest transporter of natural gas across Australia; this owner-operator of pipelines, storage facilities and a wind farm pushes about half of Australia’s annual gas use through its infrastructure.

The company’s effort to acquire the 79.3 percent of Hastings Diversified Utilities Fund (ASX: HDF) it doesn’t already own continues, as management remains keen on realizing the potential of connecting its assets to “one or more” of APA’s assets, completing what it sees is a “natural fit” in its effort “to provide more flexible and tailored services” for its existing customers.

In mid-December 2011 APA offered AUD0.50 in cash and 0.326 of its shares for each of the shares of Hastings it doesn’t own. According to a Jun. 13, 2012, statement released by Hastings, the Australian Competition and Consumer Commission has extended its decision date on the proposed deal, to Jul. 19, 2012.

APA Group, which is yielding 6.9 percent at current levels, is a strong buy up to USD5.50.

Envestra, for its part, owns about 22,200 kilometers of natural gas distribution networks and 1,120 kilometers of transmission pipelines, serving over 1.1 million household and business consumers in South Australia, Victoria, Queensland, New South Wales and the Northern Territory.

The company generates its revenue by charging retailers to transport natural gas through these networks.

Envestra listed on the Australian Securities Exchange in August 1997, but its origins date back almost 150 years to the gas distribution networks of the former South Australian and Brisbane Gas Companies and the Gas and Fuel Corporation of Victoria.

The South Australian and Brisbane Gas Companies, which started operating in 1861 and 1864 respectively, were owned by Boral Ltd (ASX: BLD, OTC: BOALF, ADR: BOALY). In early 1997 Boral sold the distribution networks of these companies by floating Envestra as a new company, which acquired these assets for AUD900 million.

In March 1999 Envestra acquired part of the former Gas and Fuel Corporation’s distribution network in Victoria for AUD1.2 billion, bringing the total value of the company’s assets to AUD2.1 billion. Today Envestra has assets of about AUD3 billion.

On Jul. 2, 2007, the contract to operate, maintain and expand Envestra’s distribution networks was transferred to APA Asset Management, part of APA Group, which owns 30.8 percent of the company.

The company announced a dividend of AUD0.029 per share along with its results for the first half of fiscal 2012. The dividend paid on Apr. 27, 2012, to shareholders of record as of Mar. 26, 2012, brought Envestra’s payout for 2011-12 to AUD0.058 from AUD0.055, an increase of 5.5 percent from the prior corresponding period. Management also boosted its fiscal 2012 full-year net profit after tax (NPAT) guidance to around AUD70 million from a previous estimate of AUD60 million.

Envestra posted a 16 percent increase in NPAT to AUD40.7 million for the first half of fiscal 2012, as revenue grew 8 percent to AUD243.9 million. According to management, “The profit increase reflects increased tariffs applying from July 1, 2011, as a result of the South Australian and Queensland regulatory reviews.”

Envestra, which is yielding 7.2 percent at these levels, is a strong buy under USD0.80.