Sarah Belfield - Reporter and writer, freelance

s a r a h b e l f i e l d

reporter & writer, freelance

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FRONTIER AREAS STILL UNDER-EXPLORED: APPEA

(Oil & Gas Gazette, April 2006)

IF SHE were pressed to choose, Belinda Robinson's pet issue for the Australian oil and gas industry would be the need to increase exploration in frontier areas.

It was also a bugbear of Barry Jones, Robinson's predecessor as chief executive of Australian Petroleum Production and Exploration Association (APPEA). Back in September 2004 the peak body had called Australia's need for a comprehensive oil exploration policy a matter of national urgency.

Despite the passage of 18 months and some drastic changes in the industry's geopolitical supply-and-demand landscape there is an eerie feeling of deja vu. As single issues, not even China's energy hunger, India's recent moves toward nuclear power or Iran's run-in with the United Nations managed to nudge into pole position in the APPEA chief's eyes.

"The Commonwealth needs to be expanding its commitment to offshore geological research," went the APPEA message back in 2004. Frontier exploration needed to be more attractive and seismic surveys needed to be encouraged in frontier areas.

Fast-forward to a press conference in March 2006, where Robinson said it would be a sad irony for a population to pay high oil prices without the wealth benefit of maximised oil export receipts.

"We don't want increased dependence on oil imports, because all that does is transfer wealth from Australia to the world," she said.

But the omens may already be staring us in the face. According to APPEA, Australia recently saw its first modern trade deficit in petroleum products. In 2004-05, trade in crude oil produced a net deficit of $3.7 billion, a deterioration from the previous fiscal year's $1.5 billion deficit.

Deficit threatens

Robinson's choice of frontier exploration as a headline issue for the oil and gas industry springs from the deeper-seated issue of declining oil production in Australia — and what the trend might do to the nation's trade balance.

"I think last year the biggest site we found in oil discovered was the equivalent of around 10 million barrels. Well that's like 12 days' worth, something like that," Robinson told Oil & Gas Gazette.

At latest count, Australia was producing about 65 percent of the oil it consumed.

"At the moment we consume about 800,000 barrels a day and we're producing about 550,000 barrels," she said.

The national agency Geoscience Australia was predicting that unless new discoveries are made, this 'independence' level could drop to 30 percent, according to Robinson.

"We've never been in that position before. And that translates into trade deficits in petroleum and condensates of around $20 billion by 2015."

Robinson said that deficit dollar-figure had been derived by APPEA using Geoscience Australia's mid-range projection of oil production, overlain onto ABARE's demand projections. This exercise returned a production-demand gap, which APPEA then multiplied by the current price of oil to come up with its trade-deficit value of around $20 billion. The result assumed those projections became reality, she said.

"Now, part of our strategy is to try and ensure that that doesn't come true, because it's not in Australia's best interests at all."

Such a large petroleum-liquids trade deficit would have important implications for the country's interest rates, Robinson said.

But she suspected people hadn't yet fathomed the longer-term implications of declining oil production. She said a glib response to declining oil production and trade deficits might be a metaphoric shoulder shrug — to conclude Australia was not very prospective for oil. The next step was to surmise the country needed to "... get on with doing LNG or coal or doing the things that we are good at".

The trouble with this logic was that oil production shortfalls could not easily be topped up using other energy products, Robinson said.

"At today's prices you need to export about 13 times as much LNG to make up the same value as one barrel of imported oil. And of course as prices increase that differential increases as well.

"So those arguments I'm not sure people understand and I think it's very important that they do."

Australia was not yet particularly heavily dependent on the Middle East as a source of imported oil, Robinson said, but in the future the world was going to have to confront that pretty huge issue.

"I would say it's massively in Australia's best economic and security interests to get out there, see what we've got, produce it, and Australia's a lot better off and wealthier for it."

Offshore frontiers

Australia had vast sedimentary basins that offered a very real prospect of hosting a large oil province, Robinson told Oil & Gas Gazette.

"The point here is that we are very under-explored and we really don't know what's out there. And why wouldn't you go out and see what the potential is for Australia?"

She said frontier areas identified by Geoscience Australia included the Great Australian Bight, offshore south-western Australia, the Northwest Shelf, the Arafura Basin, and the Lord Howe Rise.

A report on an Arafura oil-seep detection survey was expected to be made available in mid-2006, Geoscience Australia (GA) scientists said recently in the agency's in-house magazine, AusGeo News. The survey — which collected acoustic data, sediments, rocks, biological samples, and conductivity-temperature profiles — was completed by GA and the National Oceans Office. GA said it had identified the northern part of the basin as a "promising" shallow-water frontier.

Also becoming available around the same time would be new Arafura datasets on geochemistry, organic petrology, biostratigraphy and geohistory, plus work presenting the basin's petroleum geology.

GA's work at the deepwater Bremer Sub-basin frontier area in the far west of the Great Australian Bight also saw the compilation of survey data and sample analyses last year.

Other show-stoppers

Finding the next significant oil provinces was not the only formidable issue the oil and gas industry was up against, according to Robinson.

She said 'biggie' number two was to increase the domestic market penetration of gas by improving its competitiveness with some of the other energy sources.

"We've articulated a goal of 70% by 2015," she told reporters gathered at the March press conference.

"In other words, by 2015 that 70% of all new electricity generated will come from gas. Now, obviously, that's an aspirational target, not a scientific assessment, but I would say without aspiration and without ambition then you'd have nothing."

"Another big one is rising costs," she told Oil&Gas Gazette.

"I think 18 months ago we were getting exploration rigs for $65,000 a day and that's jumped up to a quarter of a million. If you can get them."

Also among APPEA's high-ranking issues was ensuring Australia has an appropriately-trained oil and gas workforce.

The view prevailing within APPEA was that today's petroleum world has shifted markedly. Things were not the same as a decade ago — or even 12 months ago, according to Robinson.

For instance, nations were seeking less greenhouse-intense energy sources, and there was enormous growth in the energy demand around the world. There had been a real turnaround in the demand for LNG.

And right alongside this was an increasing number of new, low-cost LNG producers. Robinson mentioned Qatar as one low-cost contender threatening to take a bigger slice of pie.

"We can't rest on our laurels and we can't be complacent, because there are increasing numbers of players in the market that are low-cost and have very favourable economic conditions — quick and easy approval processes and so on," she said.

As if all this weren't enough, price uncertainty about could be thrown into the mix as well. Robinson said the industry was unsure about the extent to which higher oil prices would be sustained in the long term.

Strategy

In answer to the panoply of issues confronting the upstream oil and gas industry, APPEA has begun work that bears all the hallmarks of a SWOT analysis.

Robinson said in the year ahead APPEA would be forming a strategy for the oil and gas industry's direction. The initiative is being done in conjunction with federal, state and territory governments.

She said the association would be looking at "everything" in the process of strategy formulation.

"We'll be looking at the regulatory regime in Australia, we'll be looking at the fiscal regime in Australia, we'll be looking at structural issues within industry, we'll be looking at skills and training and education and how we as an industry can better address our needs in that area, we'll be looking at the technology opportunities for the industry in the long term and what they mean for us and what they mean again for Australia," she said.

"This is about how Australia can position itself to benefit as much as possible from this huge increase in world-wide energy demand."

Robinson said the strategy's analysis would involve "... drilling down into those half a dozen issues that are going to make the difference between status quo and a really, strong sustainable future for the petroleum industry in Australia".

The work will see an issues paper released for public comment by the end of March.

"What the issues paper is about is not jumping to any conclusions," Robinson said.

"It's simply meant to be a factual overview of the vision that we think is possible for the industry in Australia, and the issues that we consider need to be addressed if the potential for the industry is going to be realised.

"So that's a combination of identifying impediments and identifying the opportunities. Hopefully it will be a fairly frank overview of the issues without jumping to any conclusions on how to solve them."

A final strategy document has been scheduled for launch at the end of the year.

Announcing the strategy project, Robinson was candid.

"We're not saying that we've got all the answers at the moment for declining oil production, or increasing Australia's competitiveness, or continuing to grow the LNG market, or increase the penetration of natural gas into the domestic market," she said.

"If we did, of course we wouldn't be going down the path of [formulating] an industry strategy."

"But what we do know, is we want to have a good hard look at Australia's competitive position. We want to make sure that competitive position is maintained and strengthened in the long term, so that all Australians can benefit from the substantial wealth that the industry has the potential of creating for this country."

Australia 'embarrassed'

Accompanying the announcement of the industry direction strategy was APPEA's 'vision for the future' document, which contained targets showing what APPEA believed the upstream oil and gas industry could look like and aspire to over the next decade.

One of APPEA's specific targets was for Australia's LNG production capacity to exceed 50 million tonnes annually by 2015.

Federal industry and resources minister Ian Macfarlane made reference to the target during a speech in Perth recently.

Macfarlane — who also participated in the announcement of the industry direction strategy — was positive the goal was realistic.

"If you look at Australia's current exports, which are around 12 million tonnes per annum, and you look at the potential developments of Gorgon, of Browse, of Inpex, of Pluto, of the oilfields in the Timor Sea, the four-fold if not five-fold increase of Australian LNG is quite realistic in the next decade," he said.

"The reality is that our customers are demanding of that.

"At the moment, Australia is embarrassed by not being able to supply the demand of LNG coming from the rest of the world.

"If you look at the Asia-Pacific rim, if you look at the arrival of India into the LNG market, if you look at the growing dependence of western Europe on pipeline that stretches well into Russia, all those markets are saying one thing — they want LNG from a stable, reliable supplier."

"And there is a no more stable and a no more reliable supplier of LNG in the world than Australia."

But what would threaten that position would be to reserve gas supply for Australia's domestic use, Macfarlane said.

"That's not the investment opportunity that we want to present internationally."

He posed the question that if there were a need to reserve gas in the future, why was that any different to requesting the Chinese, the Japanese or the Koreans to take a 25-year contract.

"I have a lot of sympathy for the energy demands of Western Australia ... but potential users of gas in Western Australia need to be treated exactly the same way as everyone else — and that is if you see a need for this gas or you want this gas reserved for your use, then you really should just step up to the plate and take a contract.

"There is a risk always if a state government — because it won't be this federal government — interfered in a process whereby gas exploration and project development is predicated on non-commercial terms.

"The bottom line is that these developments do need to be commercial. If you interfere in the normal commercial process in Australia, you run the risk of pushing away investment in particular. We'd see this gas sitting around forever."

s a r a h b e l f i e l d reporter & writer, freelance

About Services Clips Ideas Contact	Sample clip FRONTIER AREAS STILL UNDER-EXPLORED: APPEA (Oil & Gas Gazette, April 2006) IF SHE were pressed to choose, Belinda Robinson's pet issue for the Australian oil and gas industry would be the need to increase exploration in frontier areas. It was also a bugbear of Barry Jones, Robinson's predecessor as chief executive of Australian Petroleum Production and Exploration Association (APPEA). Back in September 2004 the peak body had called Australia's need for a comprehensive oil exploration policy a matter of national urgency. Despite the passage of 18 months and some drastic changes in the industry's geopolitical supply-and-demand landscape there is an eerie feeling of deja vu. As single issues, not even China's energy hunger, India's recent moves toward nuclear power or Iran's run-in with the United Nations managed to nudge into pole position in the APPEA chief's eyes. "The Commonwealth needs to be expanding its commitment to offshore geological research," went the APPEA message back in 2004. Frontier exploration needed to be more attractive and seismic surveys needed to be encouraged in frontier areas. Fast-forward to a press conference in March 2006, where Robinson said it would be a sad irony for a population to pay high oil prices without the wealth benefit of maximised oil export receipts. "We don't want increased dependence on oil imports, because all that does is transfer wealth from Australia to the world," she said. But the omens may already be staring us in the face. According to APPEA, Australia recently saw its first modern trade deficit in petroleum products. In 2004-05, trade in crude oil produced a net deficit of $3.7 billion, a deterioration from the previous fiscal year's $1.5 billion deficit. Deficit threatens Robinson's choice of frontier exploration as a headline issue for the oil and gas industry springs from the deeper-seated issue of declining oil production in Australia — and what the trend might do to the nation's trade balance. "I think last year the biggest site we found in oil discovered was the equivalent of around 10 million barrels. Well that's like 12 days' worth, something like that," Robinson told Oil & Gas Gazette. At latest count, Australia was producing about 65 percent of the oil it consumed. "At the moment we consume about 800,000 barrels a day and we're producing about 550,000 barrels," she said. The national agency Geoscience Australia was predicting that unless new discoveries are made, this 'independence' level could drop to 30 percent, according to Robinson. "We've never been in that position before. And that translates into trade deficits in petroleum and condensates of around $20 billion by 2015." Robinson said that deficit dollar-figure had been derived by APPEA using Geoscience Australia's mid-range projection of oil production, overlain onto ABARE's demand projections. This exercise returned a production-demand gap, which APPEA then multiplied by the current price of oil to come up with its trade-deficit value of around $20 billion. The result assumed those projections became reality, she said. "Now, part of our strategy is to try and ensure that that doesn't come true, because it's not in Australia's best interests at all." Such a large petroleum-liquids trade deficit would have important implications for the country's interest rates, Robinson said. But she suspected people hadn't yet fathomed the longer-term implications of declining oil production. She said a glib response to declining oil production and trade deficits might be a metaphoric shoulder shrug — to conclude Australia was not very prospective for oil. The next step was to surmise the country needed to "... get on with doing LNG or coal or doing the things that we are good at". The trouble with this logic was that oil production shortfalls could not easily be topped up using other energy products, Robinson said. "At today's prices you need to export about 13 times as much LNG to make up the same value as one barrel of imported oil. And of course as prices increase that differential increases as well. "So those arguments I'm not sure people understand and I think it's very important that they do." Australia was not yet particularly heavily dependent on the Middle East as a source of imported oil, Robinson said, but in the future the world was going to have to confront that pretty huge issue. "I would say it's massively in Australia's best economic and security interests to get out there, see what we've got, produce it, and Australia's a lot better off and wealthier for it." Offshore frontiers Australia had vast sedimentary basins that offered a very real prospect of hosting a large oil province, Robinson told Oil & Gas Gazette. "The point here is that we are very under-explored and we really don't know what's out there. And why wouldn't you go out and see what the potential is for Australia?" She said frontier areas identified by Geoscience Australia included the Great Australian Bight, offshore south-western Australia, the Northwest Shelf, the Arafura Basin, and the Lord Howe Rise. A report on an Arafura oil-seep detection survey was expected to be made available in mid-2006, Geoscience Australia (GA) scientists said recently in the agency's in-house magazine, AusGeo News. The survey — which collected acoustic data, sediments, rocks, biological samples, and conductivity-temperature profiles — was completed by GA and the National Oceans Office. GA said it had identified the northern part of the basin as a "promising" shallow-water frontier. Also becoming available around the same time would be new Arafura datasets on geochemistry, organic petrology, biostratigraphy and geohistory, plus work presenting the basin's petroleum geology. GA's work at the deepwater Bremer Sub-basin frontier area in the far west of the Great Australian Bight also saw the compilation of survey data and sample analyses last year. Other show-stoppers Finding the next significant oil provinces was not the only formidable issue the oil and gas industry was up against, according to Robinson. She said 'biggie' number two was to increase the domestic market penetration of gas by improving its competitiveness with some of the other energy sources. "We've articulated a goal of 70% by 2015," she told reporters gathered at the March press conference. "In other words, by 2015 that 70% of all new electricity generated will come from gas. Now, obviously, that's an aspirational target, not a scientific assessment, but I would say without aspiration and without ambition then you'd have nothing." "Another big one is rising costs," she told Oil&Gas Gazette. "I think 18 months ago we were getting exploration rigs for $65,000 a day and that's jumped up to a quarter of a million. If you can get them." Also among APPEA's high-ranking issues was ensuring Australia has an appropriately-trained oil and gas workforce. The view prevailing within APPEA was that today's petroleum world has shifted markedly. Things were not the same as a decade ago — or even 12 months ago, according to Robinson. For instance, nations were seeking less greenhouse-intense energy sources, and there was enormous growth in the energy demand around the world. There had been a real turnaround in the demand for LNG. And right alongside this was an increasing number of new, low-cost LNG producers. Robinson mentioned Qatar as one low-cost contender threatening to take a bigger slice of pie. "We can't rest on our laurels and we can't be complacent, because there are increasing numbers of players in the market that are low-cost and have very favourable economic conditions — quick and easy approval processes and so on," she said. As if all this weren't enough, price uncertainty about could be thrown into the mix as well. Robinson said the industry was unsure about the extent to which higher oil prices would be sustained in the long term. Strategy In answer to the panoply of issues confronting the upstream oil and gas industry, APPEA has begun work that bears all the hallmarks of a SWOT analysis. Robinson said in the year ahead APPEA would be forming a strategy for the oil and gas industry's direction. The initiative is being done in conjunction with federal, state and territory governments. She said the association would be looking at "everything" in the process of strategy formulation. "We'll be looking at the regulatory regime in Australia, we'll be looking at the fiscal regime in Australia, we'll be looking at structural issues within industry, we'll be looking at skills and training and education and how we as an industry can better address our needs in that area, we'll be looking at the technology opportunities for the industry in the long term and what they mean for us and what they mean again for Australia," she said. "This is about how Australia can position itself to benefit as much as possible from this huge increase in world-wide energy demand." Robinson said the strategy's analysis would involve "... drilling down into those half a dozen issues that are going to make the difference between status quo and a really, strong sustainable future for the petroleum industry in Australia". The work will see an issues paper released for public comment by the end of March. "What the issues paper is about is not jumping to any conclusions," Robinson said. "It's simply meant to be a factual overview of the vision that we think is possible for the industry in Australia, and the issues that we consider need to be addressed if the potential for the industry is going to be realised. "So that's a combination of identifying impediments and identifying the opportunities. Hopefully it will be a fairly frank overview of the issues without jumping to any conclusions on how to solve them." A final strategy document has been scheduled for launch at the end of the year. Announcing the strategy project, Robinson was candid. "We're not saying that we've got all the answers at the moment for declining oil production, or increasing Australia's competitiveness, or continuing to grow the LNG market, or increase the penetration of natural gas into the domestic market," she said. "If we did, of course we wouldn't be going down the path of [formulating] an industry strategy." "But what we do know, is we want to have a good hard look at Australia's competitive position. We want to make sure that competitive position is maintained and strengthened in the long term, so that all Australians can benefit from the substantial wealth that the industry has the potential of creating for this country." Australia 'embarrassed' Accompanying the announcement of the industry direction strategy was APPEA's 'vision for the future' document, which contained targets showing what APPEA believed the upstream oil and gas industry could look like and aspire to over the next decade. One of APPEA's specific targets was for Australia's LNG production capacity to exceed 50 million tonnes annually by 2015. Federal industry and resources minister Ian Macfarlane made reference to the target during a speech in Perth recently. Macfarlane — who also participated in the announcement of the industry direction strategy — was positive the goal was realistic. "If you look at Australia's current exports, which are around 12 million tonnes per annum, and you look at the potential developments of Gorgon, of Browse, of Inpex, of Pluto, of the oilfields in the Timor Sea, the four-fold if not five-fold increase of Australian LNG is quite realistic in the next decade," he said. "The reality is that our customers are demanding of that. "At the moment, Australia is embarrassed by not being able to supply the demand of LNG coming from the rest of the world. "If you look at the Asia-Pacific rim, if you look at the arrival of India into the LNG market, if you look at the growing dependence of western Europe on pipeline that stretches well into Russia, all those markets are saying one thing — they want LNG from a stable, reliable supplier." "And there is a no more stable and a no more reliable supplier of LNG in the world than Australia." But what would threaten that position would be to reserve gas supply for Australia's domestic use, Macfarlane said. "That's not the investment opportunity that we want to present internationally." He posed the question that if there were a need to reserve gas in the future, why was that any different to requesting the Chinese, the Japanese or the Koreans to take a 25-year contract. "I have a lot of sympathy for the energy demands of Western Australia ... but potential users of gas in Western Australia need to be treated exactly the same way as everyone else — and that is if you see a need for this gas or you want this gas reserved for your use, then you really should just step up to the plate and take a contract. "There is a risk always if a state government — because it won't be this federal government — interfered in a process whereby gas exploration and project development is predicated on non-commercial terms. "The bottom line is that these developments do need to be commercial. If you interfere in the normal commercial process in Australia, you run the risk of pushing away investment in particular. We'd see this gas sitting around forever."
	Copyright © 2006-2007 Sarah Belfield. All rights reserved.