Billions at risk: APPEA call for urgent policy reforms

The peak body for Australia’s oil and gas industry has warned the next wave of investment in projects may not materialise unless serious policy reforms are undertaken.

David Byers, chief of the Australian Petroleum Production and Exploration Association, is calling on politicians to show economic leadership ‘not just in words but by deeds’.

Byer said the sector was building around $200 billion worth of projects in Australia, with the potential to invest another $100 billion, but warned that policy changes were required.

“Australia’s attractiveness as a place to invest is under enormous pressure. Unless the next Australian parliament can work with industry to rectify this, the next generation of Australian LNG projects may never be built,” Byer said.

“The Australian oil and gas industry created 100,000 jobs last year and is looking to generate this many again in the decade ahead.

“However, the costs associated with delivering Australian LNG into key markets is now substantially higher than for projects in East Africa or North America.”

Byer said high taxes, lower labour productivity and red and green tape were all areas that need to be addressed.

"Policymakers have failed to create a stable, predictable and competitive taxation regime. Regulatory processes for approving projects are becoming increasingly inefficient. And there are serious weaknesses in the development of a skilled workforce and support industries’ supply capacity," he said

A new report commissioned by the Minerals Council of Australia highlighted policy that has the capacity to impact the sectors capacity to grow and create jobs includes budget policy and tax, energy and climate change, land access and environmental approvals, and infrastructure policy.

"There has been a significant reduction in the capacity, capability and competency of government agencies," the report said.

"The extent of regulatory 'churn' is highly destabilising for business.

"Further, the audit update also revealed that while there is a strong commitment to red/green tape reduction by governments, this has resulted in a plethora of review processes rather than efficiency reforms.”

It was earlier this year that the oil and gas sector warned that  billions of dollars worth of investments could be lost if the high cost of building major projects is not fixed in eighteen months.

The industry said tens of thousands of jobs could be lost along with billions in potential revenue if the LNG industry in particular did not become more competitive.

"There is an 18 to 24-month window in which to do so and it will require a significant structural change in Australia's costs,” Chevron Australia's managing director Roy Krzywosinski said.

While one leader involved in the sectors said the entire industry was "probably at breaking point".

Incoming Shell Australia country chair Andrew Smith called on the nation's leaders had to get serious about ensuring a long run of projects and recognise the state of play around industrial relations could not continue.

It is estimated that the LNG boom in Australia will lift Australia from the fourth largest LNG producer to the first, knocking Qatar off its perch.

In Queensland alone three projects currently under construction are expected to generate $45 billion in capital expenditure and produce 28.8 Mtpa of LNG, with the first project expected to export its first shipment late next year.

However industry insiders say that without important policy changes, Australia will lose market share to competitors like the U.S.A.

Buyers from the Asian market are asking for gaps in global gas prices to close as East Africa and the US, where there is an oversupply, are coming in with cheaper new supplies which could put  pressure on prices.

While focus has increased on gas buyers as the US granted a second LNG project to export to countries without a free trade agreement. Russia wants to redirect gas and LNG to Japan and China as demand dips and pricing reduces in Europe.

While Resources Minister Gary Gray wants more exploration of Australia’s natural gas reserves, warning that competition from Russia and Africa could threaten export into Asia.

"Competitors are coming both from Russia, through the pipeline, and they will come from East Africa – there are very large, newly discovered gas resources off the coast of East Africa,” he said.

"These resources are pointed directly at our growing Asian markets."

However Gray pointed out that Australia would soon be the "only country in the world to use three modes of natural gas LNG ­production – offshore, floating and gas from coal seams".

While the oil and gas boom in Australia is far from over leaders in the sector agree that regardless of who wins the election the investment environment needs to be a key consideration for the industry.

“We remain optimistic about the Australian investment environment but it requires significant national leadership to improve our international competitiveness including fiscal stability, increased productivity and industrial relations changes that focus on Australia’s long term interests,” Krzywosinski said.

Send this to a friend