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PERTH (miningweekly.com) – A new report undertaken by advisory firm Wood Mackenzie (WoodMac) on behalf of the Australian Petroleum Production and Exploration Association (Appea) has found that Australia’s upstream oil and gas industry needs long-term regulatory stability to create attractive investment opportunities for the sector and maintain industry’s strong economic contribution.
The report highlighted the industry’s success from 2009 to 2012 was predicated on relatively few regulatory and fiscal changes in the previous decade, which provided a strong foundation for a wave of unprecedented investment.
The scale of this investment, including the establishment of the country’s liquefied natural gas (LNG) projects, worth approximately A$350-billion, has delivered direct and indirect economic benefits to the Australian economy, the report found.
In the immediate term, the benefit has come from direct spending into local communities with the full taxation benefits to be accrued in the latter half of this decade.
By the end of 2020, a total of $310-billion will have been invested in the industry since 2010, and further large upstream investments are on the horizon, including LNG backfill opportunities at Darwin and the North West Shelf projects, expansion of the Pluto LNG project, and associated upstream development at Scarborough.
“Our analysis found the stability of the regulatory and fiscal environment in the years prior to investment was key to oil and gas majors with strong balance sheets and development capability making long-term commitments to the country,” WoodMac VP for energy consulting, Asia Pacific, Chris Graham said.
“However, against the backdrop of a challenging macroeconomic environment and lower commodity prices, Australian fiscal and regulatory volatility has increased at a time when continued stability would be highly beneficial.”
While focused on the oil and gas industry, the findings also show regulatory instability, intervention and uncertainty, coupled with Australia being considered to be a high-cost destination for business, have reduced the investment appetite, which may also be relevant for many other industries.
As Australia shifts from the current Covid-19 pandemic and its immediate economic impacts, a stable regulatory and fiscal environment is crucial for recovery.
“For decades, our industry has contributed to our national economic growth, and we are delivering around 2% of Australia’s gross domestic product (GDP),” Appea CEO Andrew McConville said.
“Australia has an opportunity to secure the next wave of investment which has the potential to deliver upwards of A$50-billion in capital expenditure, and secure up to 6 300 jobs across the life of a project and an estimated A$80-billion in taxation receipts.
“We are the world’s leading LNG exporter – an industry worth A$350-billion – however, there have been no LNG sanctions since 2012 and we risk losing investments.
“While the report was completed prior to understanding the full impacts of Covid-19, and the decline of the oil price to its lowest levels in 20 years, it remains relevant as Australia shifts focus to economic recovery and global reintegration.
McConville said the report showed the volatile investment environment we operate in now is putting more than the resources industry at risk.
“A lack of investment will have economic flow-on effects to communities and businesses we work with, making it counter-productive to the economic recovery phase that this country will need to embark on.”