PERTH (miningweekly.com) – Rising costs are threatening Australia’s ability to develop new gas projects, the Australian Petroleum Production and Exploration Association (Appea) has warned.

New analysis by Appea and the Australian Bureau of Statistics has highlighted that fewer exploration wells were being drilled offshore Australia, despite significantly higher exploration expenditure.

The number of offshore wells drilled in Australia has fallen by more than two-thirds since 2003, while the total cost has increased five-fold

While the cost of individual wells varied considerably depending on a range of geographical, geological and technical factors, the average cost of drilling offshore wells is now more than A$130-million. 

Appea western region COO Stedman Ellis said the analysis was further evidence of the significant cost pressures on Australia’s offshore exploration and production.

“These figures reflect a range of factors, including higher daily rig rates and the fact that drilling is shifting further offshore to deeper, more remote and more difficult waters.”

“The increase in drilling expenditure reflects broader cost pressures across the value chain from exploration to development and through to production. These are being exacerbated as the industry moves into more complex offshore areas. The low-hanging fruit has been picked.”

Ellis noted that Australia was already at the top of the cost curve for bringing gas to market, adding that greenfield projects in the country could be almost double the cost of new liquefied natural gas (LNG) competitors in East Africa, North America and other locations.

He noted that these cost pressures were responsible for a new pricing paradigm that has seen domestic gas prices increase to more sustainable levels.

“Big industrial gas customers who benefit from gas reservation in Western Australia have been trying to argue that record investment in offshore exploration shows the policy is not a disincentive to producers,” he said.

“But they conveniently ignore the fact that while exploration expenditure has increased since the policy’s introduction, the number of wells drilled has steadily declined.”

Appea has seconded calls that the Western Australian government abolish its domestic gas reservation policy, which currently reserved up to 15% of gas production for domestic use.

“Australia’s ability to develop new gas projects is already threatened by rising costs at home and growing competition abroad. Policies that dictate where and how gas can be sold represent a further barrier to investment,” Ellis said.