Photo by: Bloombeg
PERTH (miningweekly.com) – Resources and Energy Minister Josh Frydenberg on Monday stated that a focus on boosting Australia’s competitiveness would ensure that the country’s oil and gas industry survived the current price slump.
In an opinion piece published in the Australian Financial Review, the Minister noted that oil prices had declined from $140/bl in 2008 to around $30/bl currently, impacting on global and local producers of oil.
He pointed out that global expenditure in the oil and gas industry was down an average of 20% last year and 2014, and for the first time on record, exploration expenditure had been cut in successive years.
“As the soon to be largest liquefied natural gas (LNG) exporter in the world, Australia is affected by the lower oil price as it is used as a benchmark for longer-term gas contracts. While the impact is somewhat offset by the lower Australian dollar, the $49-billion we are expected to earn annually from LNG exports from 2020 would be substantially greater if the oil prices recovered to previous highs,” Frydenberg said.
He noted that the reduction in exploration expenditure was also affecting the pipeline of potential projects in Australia and the subsequent employment levels that were originally forecast for the industry.
“For example, the joint venture partners have delayed the final investment decision on the $40-billion Browse LNG project in Western Australia, citing the current price environment.”
Frydenberg added that the lower oil prices were also slowing the switch to renewable energy, as companies were facing new cost-benefit equations that required greater subsidies to bridge the cost gap.
The Minister said that barring a seismic geopolitical event that took out one of the major producers, supply would likely continue to outstrip demand in the near future, keeping a lid on prices.
As a result, producers in countries such as Australia had to focus on what was within their control, including decreasing the cost of business as a means to boost competitiveness.
“Streamlined regulatory processes, greater labour market flexibility and productivity-enhancing infrastructure projects are key. Encouraging innovation, automation and big data analytics, as well as de-risking exploration through the provision of government-generated geological mapping are also important,” the Minister said.
“In the end, the market will find its equilibrium. Higher-cost producers will be squeezed out, demographic trends will continue to enhance demand and exploration expenditure will recover in response. Australia, as a reliable and innovative energy supplier, will remain resilient in the face of these challenges and a world energy leader for decades to come.”