Analysts say there are around A$60 billion worth of privatisations coming up in Australia over the next few years, placing the country second only to Brazil in the privatisation stakes, and gas is the flavor of the moment. But it's not just a slice of the gas market that's at stake. Both the gas and electricity markets are being deregulated and are expected to form an integrated market in which players will have to be big to survive. So the focus now is on assets - the more the better.

`The energy market is, so to speak, coming up for grabs, and unless you get in early it's going to be difficult to do (later),' Gordon Ramsay, energy analyst with ANZ Securities Ltd told Dow Jones Newswires. Until recently, Australia's downstream gas market was characterized by a relatively sparse pipelinenetwork, largely government-owned, with suppliers wielding a monopoly over their customers. Inspired by the deregulation of the electricity market, however, pipelines have been privatised, plans for wholesale gas spot markets are advancing, government gas utilities are coming up for sale, and pipeline owners are being forced to allow access to new independent retailers.

According to Ramsay, US companies are faced with relatively mature gas markets at home markets and are attracted by Australia's growth potential. The Australian Gas Association expects that natural gas will meet 28 per cent of Australia's primary energy needs by 2030, up from 18 per cent currently.

To meet the rising demand for gas, the Association estimates that some A$6 billion worth of new gas pipeline spending is on the drawing board, and has the potential to expand the pipeline network to 23,000 kilometers from 13,000 kilometers. This potential spending includes plans by US oil major Chevron Corporation (CHV) to build a pipelinelinking markets in Australia's Queensland state to gas fields in Papua New Guinea. Australia's retail gas market, which includes sales to householders and commercial users, is estimated to be worth A$2.4 billion a year, and represents about 60 per cent of total domestic consumption. The other 40 per cent goes to larger industry users and electricity generation. Market deregulation is expected to further boost demand as it brings prices down.

`Globally, when you see markets deregulate, what happens is the commodity price tends to comes down,' ANZ Securities' Ramsay said. `Deregulation should benefit the consumer and industry over time because it should lead to increased sales volumes,' he added.

Underpinning rising gas demand in Australia are the country's rising gas reserves, which now stand at around 80 years of supply. The Australian Bureau of Agricultural and Resource Economics sees natural gas production in Australia rising 8 per cent this fiscal year ending June 30, 1998, to 32.2 billion cubicmeters, before rising a further 6.5 per cent to 34.3 billion cubic meters the following year.

Competition for a slice of the pie is only just now heating up. Last month, Epic Energy Pty Ltd, stunned the market by paying US$1.61 billion to acquire the Western Australian state government's Dampier-To-Bunbury gas pipeline. Backed by its US owners, El Paso Natural Gas Co (EPG) and Consolidated Natural Gas Co (CNG), each of which holds a one-third stake in the company, Epic offered 14 times the pipeline's annual earnings before interest, tax, depreciation and amortization, or EBITDA.

With the Dampier-To-Bunbury sale price still ringing in their ears, analysts said they now reckon Victoria state's three government-owned gas utilities will fetch prices of around 15-18 times EBITDA when they go under the hammer this year. All up, the Victorian gas assets are expected to fetch over A$5 billion. But it's not just privatisations that are attracting the dollars, with analysts also expecting an increase in mergers andacquisitions as players try to carve out a big enough position in the market. The wrangling over Queensland gas distributor Allgas Ltd. could be a sign of things to come.

US energy company Texas Utilities Co (TXU) has been forced twice to increase its takeover bid for Allgas after local player Boral Ltd (BORAY) joined the fray with a bid of its own. Texas Utilities' latest bid of A$20.30 a share values the company at A$221.3 million. Allgas shares had been changing hands at just A$12.50 ahead of Texas Utilities' initial offer.

-- (Dow Jones Newswires)