THE CONFERENCE CALLER: With the RIU Good Oil Conference just around the corner the Australian Petroleum Production and Exploration Association (APPEA) seems to have resigned itself for a soon-to-be elected Labor Federal Government and is steeling its loins against possible new regulatory battles.
The lobby group shot off a broadside at the Federal Labor Party’s proposal for permanent controls on Australia’s gas exports, declaring these would not lower long-term domestic gas prices.
APPEA’s position is that more regulation and political uncertainty risks deterring investment in new gas supply which, over time, will mean higher prices.
“Like manufacturers, gas producers compete in a tough global market and understand the pressures to stay competitive,” APPEA chief executive Dr Malcolm Roberts said.
“However, trying to regulate prices does not tackle the real problems – the rising cost of producing gas and tightening local supply in Victoria and New South Wales.”
APPEA highlighted the measures proposed by the Labor Party it believes demand further discussion, including:
1) A decision to make the export controls permanent should be informed by the findings of the scheduled review in 2020. Making export controls permanent will compound the already significant level of sovereign risk created by the Australian Domestic Gas Security Mechanism, affecting more than $250 billion invested in Australia by both domestic and foreign investors. It sends an alarming signal to investors considering future investment in Australia.
2) References to a ‘benchmark price’ from the ACCC’s December 2017 report are out-of-date and misleading. The ACCC found, in its most recent (July 2018) report “… domestic price offers have reduced substantially and converged with export parity (LNG netback) prices at Wallumbilla”.
3) More broadly, the ACCC has consistently cautioned that gas prices are influenced by many factors and these factors change over time. These factors include the cost of transportation, the cost of gas production, the “non-price” terms customers request in their gas supply agreement and the role of domestic short-term gas trading markets.
4) It is unclear what “new powers” the ACCC requires. The ACCC is already actively monitoring the gas market and providing regular reports through its Gas Market Inquiry 2017 2020 and has significant powers through the Competition and Consumer Act 2010 to act against any anti-competitive behavior it observes in any market across the Australian economy. and
5) Proposals to strengthen ‘use it or lose’ provisions appear unnecessary and potentially counterproductive. A recent review for the COAG Energy Council found “… no evidence that gas is being withheld (or warehoused) from development and production …” and “… to apply a use it-or-lose-it policy to deliver downstream objectives risks longer term investment distortions and higher prices.”
APPEA believes the only effective way to put downward pressure on gas prices is by creating more supply from more suppliers and that supply needs to be from a local source to avoid customers paying significant shipping costs.
APPEA cited a report from June this year from the Australian Energy Market Operator (AEMO), in which it forecast that it does not expect supply gaps until 2030.
This was supported by similar findings of the Australian Competition and Consumer Commission (ACCC) in its July 2018 Gas Market Inquiry 2017-2020 report.
“The export controls introduced last year were not needed to ensure supply in 2018 and will not be needed in 2019 or into the future,” Roberts said.
“APPEA members are committed to supplying local customers at competitive prices.
“The east coast LNG projects are offering all their uncontracted gas to domestic buyers first.”
According to APPEA, the ACCC reports that three LNG projects in Queensland have contracted to sell 305 petajoules (PJ) of natural gas to domestic customers in 2018 – about half of east coast demand – and are likely to do the same in 2019.
Companies operating from offshore Victoria, South Australia and other Queensland gas projects will be responsible for meeting the rest of demand.
ACCC monitoring of the market shows that prices have fallen sharply over the last twelve months.
“APPEA encourages all governments to focus on lasting solutions,” Roberts continued.
“It is bizarre that Labor in New South Wales and Victoria supports bans on local gas projects while Federal Labor now proposes to penalise the gas industry in states that do support development.
“Restricting exports and killing jobs in Queensland does not lower gas prices in Sydney and Melbourne.
“Unless new gas resources in New South Wales and Victoria are developed, families and businesses in those states will pay more than those in states continuing to develop new supply.”
What’s worth taking note of is that the Petroleum industry is currently enjoying surge in activity that is resulting in some positive statistics.
Latest figures from the Australian Bureau of Statistics (ABS) shows the trend estimate for total petroleum exploration expenditure in the recently-completed June quarter 2018 rose 10.6 per cent ($25.3m) to $262.9 million.
Exploration expenditure on production leases rose 0.6 per cent ($0.3m) and exploration expenditure on all other areas rose 13 per cent ($24.4m).
The seasonally adjusted estimate for total petroleum exploration expenditure rose 84.8 per cent ($149.9m) to $326.6 million for the June quarter.
Although exploration expenditure on production leases fell 4.2 per cent (-$2.2m) the news was all good elsewhere with exploration expenditure on all other areas rising 122.2 per cent ($152.2m).
Western Australia maintained its slot as number one Resources State by being the largest contributor to the increase in the trend estimate (up 19.8 per cent, $26.3m) and the largest contributor to the rise in the seasonally adjusted estimate (up 181.2 per cent, $137.9m).
The ABS trend estimate for onshore petroleum exploration expenditure rose 7.7 per cent ($6.4m) to $89.3 million during the quarter and expenditure on drilling rose 8 per cent ($4m) along with other onshore petroleum exploration expenditure that rose 7.6 per cent ($2.5m).
The seasonally adjusted estimate for onshore petroleum exploration expenditure rose 29.3 per cent ($22.5m) to $99.4 million with expenditure on drilling up 6.4 per cent ($3.3m) and other onshore petroleum exploration jumping 75 per cent ($19.2m).
The trend estimate for offshore petroleum exploration expenditure rose 12.1 per cent ($18.7m) to $173.4 million.
Offshore expenditure on drilling rose 34.6 per cent ($24m) and other offshore petroleum exploration expenditure bucked the trend by falling 6.2 per cent (-$5.3m).
The seasonally adjusted estimate for offshore petroleum exploration expenditure rose 127.7 per cent ($127.4m) to $227.2 million.
Expenditure on drilling rose 472 per cent ($118m) and other offshore petroleum exploration expenditure rose 12.6 per cent ($9.4m).
The RIU Good Oil Conference 2018
The Good Oil Conference will bring you up-to-date with the exciting developments taking place in the oil and gas industry.
There will be two days of presentations from the leaders of the country’s emerging oil and gas companies on recent developments and new discoveries plus an outline for the sector’s future.
The conference also affords the opportunity to meet these industry leaders at what has become the most popular conference in Australia for the mid-tier and junior sector of the oil and gas market.
The RIU Good Oil Conference 2018 will be held at the Hyatt Regency Hotel Perth, Western Australia, located at 99 Adelaide Terrace Perth.
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