Sailing in to the wind

It’s a helluva challenge to pick the most interesting topic at the wide-ranging 57th Australian Petroleum Production & Exploration Association conference in Perth this week.

With 2,020 delegates, 165 exhibitors in more than 8,000 square metres of Perth’s cavernous Convention Centre and more than 100 presentations, the event is a big affair and the industry is canvassing a smorgasbord of issues.

The key point, however, is not a new one. APPEA and its members have wrestled with it literally for decades in various forms. It’s politics. “Accumulated policy failures are weighing us down,” says APPEA chairman, Bruce Lake, expressing “alarm” at the pace of reform of areas that impact on his members’ businesses — which include many small and ambitious companies (something not well-recognized in the media) as well as the elephants of exploration and oil and gas production.

Part of the PR problem for the sector is switching communication gears effectively after years of talking up huge gas developments to now win community understanding that the key challenge goes beyond the immediate domestic supply crunch. It extends also to the lowest exploration effort in 30 years, a harbinger of still more supply problems down the track.

Even though upstream petroleum companies found Australia a high cost country over the past two decades, low risk for investors saw some $200 billion invested in pursuing gas development — but mainly for export. Today’s political problem is the domestic situation, which the Prime Minister declares to be in crisis.

More broadly,Lake points out, the big issue is that Australia is on a path to being a high cost, high risk country and there are plenty of other regions when investor dollars can be directed.

In a sentence, Australians can’t expect $50 billion to be invested here in locating new gas and oil resources and bringing them to market by 2030 in an environment that is seen by the industry as being significantly negative.

The inability of the industry, the major gas users in manufacturing and the body politic to secure a “Goldilocks” situation where investor and consumer desires, along with the need for safe environmental management and the concerns of farmers are all being served has delivered what Lake and others now keep calling a “tipping point.”

Some would argue that the “tipping point” actually occurred about two years ago and the political locusts have consumed critical time for remedial action.

The Woodside CEO, Peter Coleman, sums this up by saying that what should be a time of opportunity for the industry, as our markets reach for reliable supplies of affordable, low emissions energy, is instead a period for multiple regrets in which the sector is seen by more and more in the community as creating problems rather than solving them.

The semi-spoken fear of the industry is that, because there can be no quick fixes and because politicians at federal, State and Territory levels keep kneejerking in response to community unhappiness, the operating environment for its members may already be spoiled for a longish time and opportunities will be foregone that cannot be readily recouped (including, for example, the Australian electricity generation market becoming a no-go zone for gas plants where only seven years ago the annual conference was seriously discussing a “golden age” for gas as a transition fuel).

One executive attending the conference laments that “we haven’t really tried to understand what the future might look like and prepare ourselves for a different world — I think we have done a bad job here.”

His focus is on the impending east coast gas shortfall, the prices factory users find unacceptably high and the intervention now being pursued by the Turnbull government — but this stricture can be pursued more broadly for the industry. It’s the qualifier that’s important here — really (that is, effectively) tried as opposed to the various efforts pursued across the broad canvas of energy policy and regulation that, especially in places like Victoria and New South Wales, have not produced outcomes to the industry’s advantage.

“Could have done better” in the time-honored teacher’s scribble on kids’ report cards.

One observer in the international energy trade media sums up the situation as the industry being “under the cosh” across the range of issues affecting its present and future, noting that the key remedial step “trumpeted by the industry” is to develop more gas, but suggesting that a lack of policy support at state level indicates there can be “no easy fix anytime soon.”

APPEA’s chief executive, Malcolm Roberts, prefers a different metaphor, telling another trade magazine that the industry is “buffeted by commercial and political headwinds.”

Victoria, he says, now finds itself stuck in the contradictory position of both depending on gas and prohibiting all onshore exploration and development. “I don’t expect the State government to re-assess its unsustainable position as a free rider for some time yet,” adding that New South Wales claims to be open for business, but this needs to be backed up by action.

The key focus by policymakers, Roberts says, should be on barriers to investment, not least the delays and costs of State regulation.

Meanwhile, Woodside’s Coleman argues that there is little to be gained from “continuing the blame game” and that “it is time for the nature of the conversation to change.”

The devil lies in how and over what time.

Of course, the mainstream media attention in situations like this tends to be grabbed by the “big picture” solutions, in this case the proposal for a “nation-building” coast-to-coast pipeline transporting gas 4,030 kilometres from the North-West Shelf and WA’s Kimberley to meet eastern energy hunger. It’s not seen as a silver bullet by many at the APPEA conference or, indeed, beyond it despite Turnbull being prepared to allocate funds to support a feasibility study. The shorthand for this view is that prohibitive development costs, economies of scale and challenging terrain load the dice against this “artery.”

Hovering in the wings of this conference is the imminent report of the Finkel task force, then the outcome of the federal climate change policy review and how the “animal spirits” of the political jungle will handle the challenges these throw up.

The prospect that the present headwinds will veer round to following ones is, frankly, not high. It’s hard to come away from this event in Perth without a strong sense of uneasiness.

 

 

 

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