The Swabber – a blog from down under.

Nov 3, 2014

AOG 2015 is just around the corner, and I have to acknowledge the phenomenal growth in the size and importance of this event in Perth – it signposts the corresponding growth and developing maturity of the oil and gas industry in Australia. But the question is where are we going from here?

I’m struck by parallels in the mining industry. Without wishing to be too pessimistic, the mining industry peaked about seven years ago, but today some professionals that were in that heady game are now driving taxis. In the oil and gas sector, it would appear that several large projects have been put on the back burner of late, if not in the fridge. So where does this leave Australia?

Exploration expenditure is on an upward trend, which bodes well for the long term. But new large scale O&G projects are becoming scarce. In fairness, I guess, large scale oil projects have always been a little scarce in these parts, but we have certainly punched above our weight with gas projects.

It has been said by many that high salaries and labour costs are thwarting developments. The O&G industry is innately an international beast, and investment migrates to locations where the best financial returns can be achieved. That’s the nature of capitalism! I’m sure that there will be some readjustments in salary expectations in the coming years. But the virtue of Australia for investment is its low sovereign risk, its political stability, and its stable regulatory system. So I’m not unduly pessimistic about the future – the need for energy in the SE Asian region is only going to grow.

While offshore seems to have cooled, onshore unconventionals are developing – CSG in Qld and shale gas in SA, NT and WA. This is all a learning experience, and in the shale gas arena we have much learning ahead if this is to work for Australia. And on the point of learning, Australia’s advantage is unlikely to ever be in the area of cheap labour, so we need to focus on technology development (as the mining industry has done).

Social license to operate is becoming a major issue for onshore developments, but the public is slowly coming to the realization that LNG exports effectively ties gas prices to international levels. Without a healthy industry of gas development, domestic gas prices will naturally trend to this international price. NSW and Victoria seem unable to decide whether they are prepared to trust the O&G industry’s environmental credentials, or alternatively whether they want to pay a premium price for energy. This should make for some interesting future politics in the realm of interstate relations. Watch this space!

Enough blogging words to get me into trouble …. Time to retreat back to the relative safety beneath my rock.

Kind regards,
The Swabber

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