APPEA Releases State of the Industry 2011 Report (Australia)

The Australian oil and gas industry’s peak body has released its State of the industry 2011 report, which concludes that increasing costs and inefficient approvals processes will, if not addressed, severely reduce the returns to the Australian community from its petroleum resources.

The report shows an industry in transformation, expanding rapidly to meet growing local and international demand for cleaner energy. Around $145 billion worth of new gas projects are currently under construction. The Pluto liquefied natural gas (LNG) project is expected to start production in 2012 and another six projects (Gorgon, Prelude and Wheatstone in Western Australia and three coal seam gas-based LNG projects in Queensland) are expected to start production over a three-year period from 2014.

This level of growth and activity is positive for the Australian economy but the report highlights a number of challenges which, if not addressed, could seriously reduce the capture of benefits from expansion and jeopardise successful project delivery and future growth opportunities.

Australian Petroleum Production & Exploration Association (APPEA) Chief Executive, David Byers, said “State of the industry 2011 points to some concerning trends that could hamper the capacity of this industry to continue to underpin Australia’s economic well-being.” These include:

1. Increasing costs and declining productivity

Research cited by State of the industry 2011 indicates that Australia’s LNG projects are among the highest cost in the world and over the past decade major Australian resource projects have, on average, run over budget by 36 per cent.

2. Inefficient and costly approvals and regulatory processes

The report points to a survey undertaken by the Canadian-based Fraser Institute earlier this year that concluded that dozens of regions around the world have fewer barriers to investment in petroleum exploration and development than Australia. Increasingly, petroleum industry managers regard Australia’s approval processes and regulation as a major deterrent to investment.

3. Continuing low levels of exploration

According to the report, the number of wells drilled in the search for conventional oil and gas fell to a 27-year low in 2010. Australia’s production of liquid petroleum fuels is trending downwards with liquids imports exceeding exports by $17 billion in 2010-11. When added up, all of Australia’s oil discoveries over the past five years equate to only one year of the nation’s consumption of petroleum products. Australia’s tax terms need to be competitive to encourage high-risk exploration in frontier regions.

“Resources taxation has been debated at length over recent months yet it is rarely acknowledged that Australia’s oil and gas industry pays more in taxes and royalties to governments than it earns in profits. Most of the industry’s revenue is spent on operating its assets, reinvesting in new facilities and in payments to governments, all of which add up to a major contribution to economic activity and employment,” said Mr Byers.

“At a time of significant economic uncertainty we should be doing everything we can to improve our international standing. However, in the past month we have seen costs to industry increased and competitiveness reduced by the introduction of a carbon tax on LNG exports and the prospect of further Federal Government intervention in the coal seam gas industry that will potentially cause major project delays.

“Australia has traditionally had a relative advantage as a destination for long-term investment through its reputation as a country of low political risk. Yet in this era of carbon pricing, renewable energy subsidies, increasingly onerous approvals processes, and the disproportionate influence of special interests that characterises minority government, we cannot take that reputation for granted.”

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LNG World News Staff, November 24, 2011; Image: APPEA