Australia must address soaring petroleum costs to remain competitive: Santos
Sydney (Platts)--19Nov2012/349 am EST/849 GMT
Australia is already the world's most expensive place to explore for and
produce offshore petroleum and it runs the risk of missing out on another
$150 billion worth of investment in new LNG projects if it cannot be cost
competitive, Santos CEO and Managing Director David Knox told the Australian
Institute of Energy Conference in Sydney Monday.
"The prize up for grabs for Australia and its competitors is nearly 90
million mt/year of uncontracted Asian LNG demand in 2020," Knox said. "The
challenge today is for Australian LNG to remain cost competitive so that new
projects are sanctioned to meet both Asian and domestic demand. Without these
additional projects going ahead, new investment in Australia's LNG industry
will dry up in 2017."
According to Knox, recent studies have shown that Australia is now the
most expensive offshore E&P location in the world -- three times as expensive
as the US Gulf Coast, and slightly costlier than Norway.
"Australian projects are getting more expensive," he added. "The
Australian LNG projects currently under construction are now 80% more capital
intensive than those already in operation. A lot of this cost is labor, with
the cost of Australian labor double that of many of our competitors, and
productivity in most cases lower."
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Knox called for Australia's federal and state governments to work with
the industry to streamline regulations and remove unnecessary and costly
barriers to development, and for the industry itself to improve its cost
effectiveness. Australia must also address its lack of skilled labor, he said.
"To successfully address the skills challenge we need to open our minds
as a nation, and realize that there is no skills shortage if we truly see
ourselves as a part of Asia," Knox added. "The skills and talent are
plentiful in our region, and we are well positioned to take advantage of it.
We simply have to give ourselves the permission, and realize that opening up
as a nation has its true advantages."
Knox reiterated Santos' opposition to a domestic gas reservation policy,
which he said would create uncertainty and lower confidence in Australia as
an LNG supplier to the Asian region.
"No one should be fooled, a gas reservation policy will create market
distortions, inefficiencies and would lead to a shortage of gas in Australia,
and ultimately higher prices than otherwise," he said. "In my opinion a
domestic gas reservation policy is the wrong approach to meeting our energy
According to the Australian Petroleum Production and Exploration
Association, Australia has 819 Tcf of natural gas. In 2009-10, the entire
Australian economy consumed only 0.9 Tcf, with a further 0.9 Tcf exported.
Knox told the conference that Australia has more than 50 years of known
gas reserves and resources to support both domestic and export markets,
without taking into account shale gas, estimated by the US Energy Information
Administration at close to 400 Tcf. Santos and others are seeking to bring on
stream coalseam gas and shale gas, which requires scale and advanced
technology, he added.
"These resources, while abundant, are in reality more costly to produce,"
Knox said. "If it were not for the export market, much of this gas would
remain in the ground. It is this increase in demand from Asia and the ability
to sell LNG into Asia at oil-linked pricing that has led to the unprecedented
scale and pace of development of Australia's gas resources."
Australia is currently enjoying a $180 billion LNG investment boom, with
seven major projects under construction. The new plants are expected to raise
Australia's LNG capacity from around 24 million mt/year to more than 80
million mt/year by 2017, with most of the additional output earmarked for
markets in Asia.
"What Australia needs to grasp is the potential for this economic
contribution to grow," Knox said. "If the next wave of projects go ahead, the
oil and gas industry will add an additional $150 billion of investment in the
period to 2025, accounting for nearly two-thirds of all business investment
--Christine Forster, email@example.com
--Edited by E Shailaja Nair, firstname.lastname@example.org