Australia less competitive on global stage: Shell

Shell has again flagged that the high cost of doing business in Australia is affecting the nation’s competitiveness, urging the federal government to step in.

"Costs in terms of productivity, labour availability, these are clearly issues that persist — that is one of the reasons we are here," Shell's project and technology director Matthias Bichsel said.

Speaking to The Australian from the Innovation Open House conference in Canberra, Bichsel said that with a growing number of newly discovered oil and gas reserves being tapped in lower cost countries like the US and east Africa, Australia needed to address a number of issues to ensure it remained competitive on the global stage.

"We heard from a bunch of ambassadors today and one said that the cost to do a government tender here can be three times as high as the rest of the world," he said.

"That's the area where there are opportunities to simplify, take costs out and speed up the process."

Shell Australian chairman Andrew Smith said first steps by the Abbot government to remove duplications associated with the approvals process was being welcomed by the sector.  

"The challenge is going to be to get it done, but we're off to a good start," he said.

Bichsel said the company was content with its Australian portfolio of projects including the Prelude floating LNG project, the Sunrise LNG project and the Chevron-operated Wheatstone project.

"With the opportunities that we see in Australia, we are very pleased with what we have," he said.

The company said it was not expecting cost-blowouts from the projects, but did not see any projects that hadn’t yet received a final investment decision to come on line before 2020.

"Together with (50 per cent partner) PetroChina, we are really looking for what are the best collaboration opportunities on the downstream and upstream sides, so we can use some of the infrastructure that has been built and some of the expertise to get the best value," the company said.

"It requires a level of confidence we don't have today. We need to work harder on it."

This all but confirms earlier reports that the Arrow LNG project could be put on hold until cost structure issues are ironed out.

Earlier this year the LNG industry warned $150 billion worth of investment in Australia could be lost if the high cost of building major projects is not fixed within eighteen months.

Last week the International Energy Agency downgraded long-term Australian LNG export forecasts because of the high costs associated with projects under construction.

About seven million tonnes of LNG a year from the IEA's 2035 estimate was downgraded.

"The (cost) increases threaten to hold back plans for additional export projects, especially as there are large investment needs elsewhere in the mining and energy sector," the IEA said.

"Commitments to new resource developments in Australia have slowed markedly over the last year or so and the prospects of another round of major Australian LNG projects will depend heavily on how costs evolve, on the deployment of new, potentially less costly technologies such as floating LNG and on competition from other regions, notably North America."

The US shale boom is also expected to cause the Australian LNG market problems, with analysts suggesting Asian buyers are holding off on LNG contracts, awaiting the cheaper alternative of shale gas.

Total’s director of gas and power, Philippe Sauquet, stated that the market can’t agree on a price as it waits for shale, which is expected to be cheaper than LNG.

“A lot of projects today are still on the shelf because they have not succeeded in interesting long-term buyers,” he told the Financial Times.

“Clearly there is a risk [they] won’t get built.”

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