- By Region
Off the north-west coast of Western Australia one of the world’s largest natural gas projects is under construction.
Named after a steamship that used to ply the local waters, Gorgon will cost A$43bn (US$44bn) to develop and once fully operational will produce 15m tonnes a year of liquefied natural gas – equal to eight months of consumption by Tokyo Electric Power, provider of power to the world’s largest metropolitan area.
Gorgon and projects like it are a big reason Australia has become such an important market for General Electric. The US industrial behemoth is reckoned to have generated close to US$6bn of sales last year in Australia – more than it made in China – and is positioning itself for further strong growth.
All that might sound surprising but it isn’t, according to Steve Sargent, head of GE’s operations in Australia and New Zealand.
“If developing Asia is the growth engine of the global economy”, he says, it is mineral-rich countries like Australia, Canada, Mongolia and Peru that are “providing the fuel”.
And there few are bigger than Australia, the world’s top exporter of coal and the main supplier of iron ore, a key steelmaking ingredient, to China.
Australia, which has an investment pipeline worth more than A$450bn, is also on track to overtake Qatar as the world’s largest exporter of LNG by 2017, according to the Bureau of Resources and Energy Economics.
Under chief executive Jeff Immelt, GE derives the majority of its revenues from outside the US, having shifted focus to identifying growth markets. These include resource-rich regions such as Australia, which by virtue of their mineral endowment are geared plays on fast-growing economies like China.
GE expects revenue in these areas to rise by 20-25 per cent over the next two years, outpacing what it calls ‘Rising Asia’ – China, India and the Association of Southeast Asian Nations – where it forecasts growth of 10-15 per cent.
But that is only half of the story, say analysts. Countries like Australia are also easier places to do business than in China, where overseas companies face vested interests and competition from national champions.
Mr Immelt caused a stir a couple of years ago when he revealed GE was exploring prospects elsewhere because he was worried China did not want foreign companies to “win” or be “successful.”
GE is reluctant to break out profit or sales figures for its Australian and New Zealand business, which employs 5,700 people across 74 sites. But a recent article in the Wall Street Journal claimed GE had generated US$5.8bn of sales in Australia last year – US$100m more than it made in China. Although GE won’t confirm the figure it’s clear its operations down under are growing strongly.
Revenues from its Australian industrial businesses, which include aviation, transportation and oil and gas, have grown at a compound annual rate of 32 per cent since 2006. Revenue rose from US$1.8bn in 2010 to US$2.9bn last year, according to a recent company presentation, and another year of double-digit revenue growth is expected for 2012.
GE is already well on its way, having recently secured US$3bn of LNG project work in Australia and a US$600m contract to maintain the power generation systems at Gorgon. It has also picked up US$3bn of orders on coal seam methane projects and won two large engine contracts from Virgin Australia and Qantas.
In addition to its industrial businesses, GE Capital, GE’s finance arm, also has a big presence in Australia.
“What’s terrific about the business here, if you look at all the divisions independently, is that they all have different cycles. So Australia is this nice consistent earnings and revenue generator,” Mr Sargent said in a recent interview with the Financial Times.
GE has invested $100m in a state of the art service centre in the Western Australian capital of Perth and in May launched a A$700m offer for Industrea, a Queensland-based coal-focused mining equipment company.
However, Mr Sargent says his focus when making investment decisions in Australia is not on issues like the recent slowdown in Chinese growth, but on the underlying drivers of Asian growth.
“People want to have a better life, a house with running water, electricity and maybe some appliances,” he says. “There will be bumps in the road. But the fundamentals are very powerful. Tens of millions of people a year transitioning from a rural lifestyle to an urban lifestyle.”