Australia’s LNG industry needs to take off the gloves

ADELAIDE: It’s taken a while but Australia’s liquefied natural gas industry is finally starting to deliver a strong message to the government to fix its policies or risk losing billions of dollars in projects.
But the question is whether the industry, the leading source of investment driving Australia’s resources boom, is yet speaking forcefully enough to be heard by politicians who tend to see the projects that should make the nation the largest LNG exporter in the world as golden geese ripe for the plucking.
Corporate executives used the Australian Petroleum Production and Exploration Association conference recently in Adelaide to plead for a more stable regulatory environment to let them push forward plans to take LNG output above 100 million tons a year, exceeding current global leader Qatar’s production of 70 million tons.
But the language the executives use tends to be polite and considered, as you would expect from large corporations, such as Australia’s top oil and gas firms Woodside Petroleum and Santos, and their global counterparts like Exxon Mobil and Total.
It’s another matter whether this means they will be heard by the Labour Party-led minority government, which is unpopular with the public and desperate for revenue to repair its balance sheet after a spending spree during the global financial crisis.
Woodside’s Chief Executive Peter Coleman told the conference that what the industry needs is “consistent and predictable policy,” while Exxon Mobil’s vice president for Asia-Pacific, Emma Cochrane “noted, with some concern, recent policy drifts.”
Total’s Christophe de Margerie, whose company is a partner in two Australian LNG projects, went so far as to warn the government “to be careful” in introducing a carbon tax while competitors don’t, and Santos boss and current APPEA chairman David Knox said the government can impede investment by changing the rules and stable rules are what is needed.
For respected executives, who have to safeguard the reputations of their companies, these were fairly strong words.
But what they really need to say to the government, even in polite language, is get off our backs, we already pay more than our fair share, and if you want the jobs, taxes and export earnings we bring, get off your butts and help us by bringing in supportive laws and by advocating for us in the community.
It is telling that APPEA released a document at the conference showing petroleum industry tax was more than 40 percent of pre-tax profit and the industry contributed $28 billion to the national economy in 2010-11.
These figures would most likely come as a surprise to many ordinary Australians, who have heard endlessly from Treasurer Wayne Swan on how the Labor government is tackling the billionaires and preventing the industry from robbing the Australian people of their rich endowment of natural resources.
The industry needs to be clearer that while the current projects are “locked in,” future expansions are far from certain, given Australia now has to win customers in a far more competitive LNG market, with Qatar pushing more cargoes to Asia and the possibility of LNG coming from North America before the end of the decade.
Total’s De Margerie said he was far from certain Australia would be able to justify the economics to sanction expansions beyond the current LNG projects already being built.
If this was the case, it would be a severe blow to the government’s hopes for a long-lasting investment boom on the back of increased demand for LNG, and indeed other commodities such as coal.
The industry needs to be clearer that measures such as the carbon tax, labor market rules that lower flexibility and raise costs and potential changes to other tax rules risk future investment.
Unfortunately, it’s more than likely that somebody will have to scratch or indefinitely delay a project before the government will listen.
It’s also far from certain that the LNG industry is doing enough to convince the wider public of the immense benefits it is bringing, and will continue to bring in the future, to the Australian economy.
The industry has been caught off guard on two fronts in the past year or so, first by the legislating of a carbon tax by Prime Minster Julia Gillard despite her promise prior to the 2010 election not to, and secondly by mounting opposition from farmers and environmentalists to using coal-seam gas as the feedstock for LNG projects.
Australia currently has three operating LNG plants, all based on conventional offshore gas fields and located in its north and west.
However, it has seven more projects under construction, at an estimated cost of A$170 billion ($169.7 billion), three of these in Queensland state and relying on coal-seam gas.
Using this source means gaining access to farmland and drilling thousands of wells, as well as building water treatment plants and associated pipeline infrastructure.
While the industry has a legal right to access farms and the natural gas beneath the soil, it has been battling mounting public concern that farmers aren’t getting a fair share of the spoils and that its practices put the environment at risk.
As even the National Farmers’ Federation’s vice president Duncan Fraser put it, there’s an “unholy alliance” of farmers and green groups tackling the industry.
The industry response has been to try and explain its side of the argument, but the reasonable sounding and modestly presented views are often drowned out by activists who have loads of experience in making lots of noise and getting noticed in the rough and tumble that characterise Australian politics.
The LNG industry needs to recognize that in some cases, nice guys risk coming last and if they want Australia to be at the center of a global LNG hub, the gloves have to come off.
— Clyde Russell is a Reuters market analyst. The views expressed are his own.