The issues surrounding the oil and gas industry in WA almost rival the scale and complexity of the sector itself.
IT was hard to move in Perth this week without bumping into people from the oil and gas sector or hearing animated discussions about the industry’s prospects.
The hosting of the annual APPEA conference this week highlighted the growth of the sector and WA’s importance in that process.
With more than 3,000 delegates and 160 exhibitors showing their wares in the Perth Convention Exhibition Centre, the conference on its own has become big business.
It followed the successful Australasian Oil & Gas exhibition and conference held in Perth in February. That event attracted 450 exhibitors and will be returning next year.
Both events will be upstaged by the world’s largest liquefied natural gas conference, which Perth has won the right to host in the year 2016. The LNG 18 conference is expected to attract up to 4,000 delegates.
It will be the second time Perth has hosted the conference, with LNG 12 held in Perth in 1998.
That event signified WA’s emergence as an LNG province, with the Woodside-operated North West Shelf venture being the country’s sole producer.
Since then, the NWS venture has expanded to five production trains with total output of 16.3 million tonnes per year.
In addition, Conoco Philips has established the Darwin LNG project, with annual output of 3.2mt.
Currently, Woodside’s Pluto project is going into production, and Chevron’s Gorgon project is under construction, along with Apache’s Devil Creek project, BHP Billiton’s Macedon project and various capital projects designed to sustain output at the North West Shelf venture.
At least six other projects, including Prelude, Wheatstone, Ichthys, Pluto phase 2, Browse and Sunrise are under consideration.
On top of that, Queensland is set to emerge as a major LNG producer as multiple groups seek to exploit the extensive reserves of coal seam gas found in that state. The Curtis and Gladstone projects are proceeding, and at least two more could follow.
Collectively, Australia’s LNG production could reach 100mt pa, meaning the country would overtake Qatar as the world’s largest producer.
But it doesn’t stop there, with the PNG gas development being yet another project to proceed in the region.
The multiple projects convey the enormous opportunity, and some of the challenges.
The labour shortage is arguably the most acute issue facing the sector. Large LNG projects employ thousands of people during the construction phase. Finding the right people will be an enormous challenge, especially if several projects proceed concurrently.
This creates a great opportunity for skilled workers to quickly earn a large income. However, the opportunity for the workers becomes a cost for the developer and puts pressure on the commercial viability of these projects.
The prospect of a carbon tax is likely to add to costs, and the possibility of more changes to the taxation of resource sector profits adds another layer of uncertainty.
With high commodity prices, there is enormous appetite to develop new resources projects in WA, but it would be rash to assume these conditions will last long term.
The challenge for policy makers in Canberra and Perth is to facilitate the approval of new projects while ensuring appropriate environmental and safety regulations are established.
The Montara incident highlighted the safety risks, yet the main outcome of the Montara inquiry seems to be a spat between the state and federal governments over who should have responsibility for safety regulation. Surely Canberra has plenty of other issues to worry about.
Plans for an LNG hub at James Price Point north of Broome is another development mired in controversy, with indigenous, environmental and tourism industry groups all opposed.
While project developers are rightly worried about higher costs they might have to carry, WA industry is also concerned about the extent of flow-on benefits, in the form of domestic gas at competitive prices, and work for local manufacturers and engineers.
Managing all of these issues is no easy feat; add in controversy over takeovers, as we saw this week, and the picture gets even more interesting.
