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What factors do you think will impact Australia’s oil and gas industry heading into 2016/17?
Angus Rodger, Principal Analyst, Wood Mackenzie
For me, the primary issue has to be cost. Australian is a high-cost upstream environment, and with a lower oil price it is paramount that operators reduce expenditure, both to make existing operations profitable but also to make new developments economically feasible. Is this cannot be achieved – and this will involve operators, service providers and regulators – the outlook for new projects will be very grim indeed.
Peter Strachan, Principal, Stock Analysis
Clearly, the long term market for LNG and the immediate outlook for the oil price will be top of the list. The oil market will be influenced by how rapidly output of light tight oil (LTO) from US shale operations declines through the 2nd half of 2015 and into 2016, as well as the potential re-entry of Iranian oil into the market.
The industry will begin looking further out as the inevitable and rapid rise of electric vehicles over the coming 10 years eats away at the market for transport fuel beyond 2020. Mergers and acquisitions will be an increasingly important factor in the Australian energy scene. Lower commodity prices will force long overdue efficiencies on the industry, with companies seeking to reduce overheads as a percentage of operating costs.
Richard Cottee, Managing Director, Central Petroleum
The start-up of the 6 trains at Gladstone will unmask the domestic supply situation with the advent of NEGI the renaissance of NT oil and gas should dawn.
Geoffrey Cann, National Director, Oil and Gas, Deloitte Australia The big story for 2016-17 will be the progressive ramp up of LNG manufacturing in both WA and Queensland. The country currently has 9 operating LNG trains (Northwest Shelf, Pluto, Darwin and QGC), and we should see GLNG and APLNG enter production, along with Gorgon and Wheatstone. The projects will shift from largely construction projects to operating businesses, focused on operations excellence, marketing and trading. The supply industry will need to match that shift by offering a different suite of services and on very different contracting terms.
Domestically, the volume and price of gas in the east will likely continue to show considerable volatility as the east coast projects ramp up. Gas customers need to adapt by beefing up their gas purchasing and trading capabilities. Internationally, we will see the US enter LNG production as the first of its projects completes its build out. Canada is likely to sanction one or two of its projects. Expect to see an increasing level of interest in Australia’s experienced resources to work overseas on these projects. Meanwhile the domestic projects will continue to explore any and all opportunity to improve their cost positions.
What are the discussions that you are looking forward to having with your industry peers at SEAAOC 2015?
Angus Rodger: How much cost deflation operators are seeing and creating, and the new initiatives and ideas that are being proposed to make Australia globally competitive again.
Peter Strachan: A 4 mmbbls rise in output of LTO from the USA since 2011 has masked peak oil output from conventional reservoirs, so the topic that has fallen away over the past two years. After a year of lower oil price, how long will oil output be curtailed and given the rapid rate of production depletion from unconventional reservoirs and a dramatic fall in capital spending, will it ever recover? In the face of disinvestment of interests in fossil fuel companies by several large institutional investors, will the industry be able to attract sufficient funding to ensure availability of product as more renewable sources are developed?
Richard Cottee: How the industry can strengthen its social licence to operate.
Geoffrey Cann: SEAAOC is one of my favourite conferences in Australia. It’s large enough that it attracts a big audience, but sized right to feel intimate and welcoming.
I expect to gain insights into how the WA and NT projects are progressing, the latest developments in the frontier basins, the prospects for the creation of a truly national gas market, and the demand for services in operations and maintenance.