As the shock of a demoralising global price downturn continues to reverberate through the international oil and gas industry, many leading companies have been forced to refocus and adapt their methods to fight the price slump. The industry reached its nadir in January 2016, as prices dropped to just US$30 a barrel, but since this low point prices have been gradually regenerating, which has allowed a quiet optimism to build.
With a substantial chunk of its economy relying on strong oil and gas prices, Australia has focused on maintaining a healthy industry over the last few years. Oil and gas have always played a crucial role in the country’s economy and industry advocates have worked tirelessly to ensure that the field continues to experience positive developments.
In particular, the work of the Australian Petroleum Production and Exploration Association (APPEA) has been indispensable to the national commodity industry in the face of the global price downturn, and indeed over the last 50 years.
Founded in 1959, APPEA has consistently developed over the ensuing decades and now finds itself at the very heart of the Australian energy industry. APPEA is the principal organisation which embodies the needs of Australia’s oil and gas exploration and production industry. Boasting around 250 member companies which represent 98% of oil and gas production in the country.
Malcolm Roberts, APPEA chief executive, told RGN that the organisation’s aim is to, “Create the best policy and regulatory environment for its members, so that they have the confidence to invest and grow their business. We represent the industry to government and to the wider community.” The organisation shares an ongoing dialogue with local and federal government, with the intention of achieving the best possible practical results for project leaders in the industry.
APPEA is also the mouthpiece of the national commodity market. The organisation advertises the increasing strength of the upstream petroleum industry by publishing latest news and information, which emphasises the sector’s importance to the national economy. In fact, recent figures indicate that oil and gas comprises AUS$16 billion of Australia’s total export numbers, with this figure set to increase as new projects begin to swell the domestic supply chain.
APPEA also hosts and attends a number of conferences each year, which allows like-minded industry experts and companies to network and collaborate together in order to further develop opportunities and projects in the field. This networking is particularly important within current market conditions. Indeed, Roberts says, “[There is] a good deal of information sharing. There has been a strong focus on maintaining more collaborative approaches. We have seen efforts to try and improve the operation of individual businesses by learning lessons that other businesses have.”
Nowadays APPEA is placing increased importance on supporting Australia’s thriving natural gas industry, as oil production continues to struggle through the low-price environment. Furthermore, in response to ongoing debates surrounding the use of fossil fuels, Australia’s reliance on oil as an energy source is being reduced, while the importance of gas to high temperature industrial processes and also as a feedstock to local manufacturing is being continually underlined.
However, for many companies invested in the Australian oil and gas industry, maintaining profitability has been particularly challenging in recent times, taking into consideration the hasty descent of global commodity prices. Liquefied natural gas (LNG) prices are at a 12-year low, and have fallen by a third in the last 12 months, which has had a significant effect on gas companies across the country.
“We are certainly seeing it across the industry where businesses are having to cut their costs to protect margins. There is a balancing act of cutting costs without damaging long-term sustainability, but in some cases it coincides with the end of major construction on key assets,” says Roberts.
“Companies are looking to sell some of their potential future assets which are not integral to their business, whereas a lot of the buyers are looking for fire sales. They are looking for projects that are producing now. Therefore we haven’t seen substantial M&A in the market in part because of this disconnect.”
Yet out of this atmosphere of upheaval and uncertainty, the Australian market has shown a considerable degree of resilience and agility in the face of such adversity. Investment in new, large-scale projects has continued at a steady pace, with over $200 billion being spent over the last six years developing LNG projects. According to Roberts this ‘phenomenal’ progress has largely been down to a significant amount of preparatory work on existing reserves and “tremendous investment in projects like Gorgon and Wheatstone.”
The Gorgon gas project has been hailed as ‘the largest single-resource development in Australian history’ by developers Chevron. Located about 37 miles off the northwest coast of Western Australia on Barrow Island, construction began in 2010, with first gas production arriving on 7 March 2016. The sizeable project includes an LNG facility with three processing units designed to produce 15.6 million metric tonnes of LNG per year. This includes a domestic natural gas plant.
Another gas project situated in Western Australia, and funded by the American multinational energy company Chevron, is the natural gas hub at Wheatstone. The project has been awarded billions of dollars in contracts for materials and services which have gone towards the construction of two LNG trains with a combined capacity of 8.9 million metric tonnes per year. The first LNG cargo is expected by mid-2017.
Commenting on the strength of Western Australia’s gas producing projects, Roberts says, “The domestic demand for gas in Western Australia is continuing to grow strongly, and that demand is being met from a combination of onshore and offshore sources. We are seeing record domestic gas production in the region.”
However, while the scene in the Australian natural gas industry seems to be becoming ever rosier, national oil markets have not received the same abiding support. This has been illustrated by BP’s recent decision to pull out of exploration drilling in the Great Australian Bight.
BP’s decision reflects a deepening trend in the industry, according to Roberts, “We are seeing reduced exploration in both onshore and offshore projects, and that’s been a trend that has been observable for three quarters of a year at least.”
However there is light at the end of the tunnel for Australian oil as the price returns. Chevron has expressed an interest in rejuvenating the Bight project and there are other oil projects set to commence in the coming years. For example, the greater Enfield project has received approval from Woodside-Mitsu for a $2.5 billion oil project which promises to deliver a strong profit in current market conditions.
Consequently, rumours of the industries’ death have been greatly exaggerated, says a reassuring Roberts with APPEA determined to get Australia’s commodity industry back on track. Looking to the future, Roberts points to a return in exploration and a well-developed reserves supply, particularly for gas, which will precipitate trade in the Asia-Pacific region. If these objectives can be achieved, Australia may well lead the way in the global recovery of the commodity market.