Exploration is back on the agenda in Australia
A landmark energy report warns that Australia must go back to drilling
Booming liquefied natural gas exports are making exploration a renewed priority in Australia, despite years of musical chairs in the federal government. This period of chop and change bedevilled the debate over the oil and gas industry's long-term role in energy supply.
Just as the sector was in despair following the toppling of prime minister Malcolm Turnbull on the eve of a hard-won long-term agreement over its role in energy supply, two government reports have given the upstream industry hope.
In early October, the Resources and Energy Quarterly showed that LNG exports earned Australia nearly A$38bn ($27bn) in 2017-18, up 36%, and are forecast to rocket again to A$48.4bn in 2018-19. If gas sales hit the latter target, they'll surpass metallurgical coal as Australia's second-biggest resource and energy-export earner.
"Australia's LNG projects will deliver decades of economic growth, jobs and exports," promised Malcolm Roberts, chief executive of industry lobby, the Australian Petroleum, Production and Exploration Association (APPEA), on the release of the report.
Probably more importantly, two weeks earlier the long-awaited Resources 2030 Task Force report, a non-partisan initiative, delivered a roadmap for the entire resources sector. It criticised federal and state governments for not collaborating on much-needed policies to promote exploration. The report's brickbats follow years of lobbying by the APPEA and other oil and gas trade bodies for the government to allow drilling in new basins.
As the APPEA points out, petroleum exploration in Australia is at its lowest level in more than 20 years. This is mainly because of endless conflicts over the role of renewables in energy supplies.
The gas industry, in particular, is frustrated over the collapse of Turnbull's National Energy Guarantee. At the sector's annual conference in September, one delegate condemned "a decade-long failure to effectively integrate energy policy and climate policy".
But the task force report could provoke the various governments into action. Among other urgent measures, it called for more streamlined regulations that avoid "unnecessary duplication", closer collaboration between oil and gas companies (for instance in geoscience vital to more effective drilling), and, crucially, an expansion of the so-called Exploring for the Future programme.
Two government reports have given the upstream industry hope
As the report points out, although the most significant opportunities lie in unexplored or greenfield areas, most capital expenditure on exploration has gone into brownfield areas for years on end. "This has happened partly because capital markets want to reduce risk and secure quick returns, but also because of a lack of applied knowledge and effective technologies available to explore frontier areas," notes the report.
Vast new source
Quadrant's discovery in August of heavy reserves in the Dorado-1 field in Western Australia's Bedout basin provids a timely reminder of the task force's advice about upstream investment. There's been drilling in the area for 40 years, but the Dorado-1 could open up a vast new source of conventional oil. Wood Mackenzie has labelled the find as perhaps the biggest in Australia in 15 years.
Yet the anti-exploration lobby remains as active as ever. After the federal government in May released a total of 21 new areas, spread over three different states, for bidding by exploration companies, green groups promised to fight any new drilling in the "pristine waters" of the Great Australian Bight. BP abandoned exploration in the Bight in 2016, but Equinor bought two of its permits there.
However, federal resources minister Matt Canavan insists the release of new acreage is essential—"offshore oil and gas exploration is vital to meeting Australia's future energy needs".
As bids for these acreages arrive between now and the 2019 deadline, they'll say a lot about whether exploration has turned a corner after years of decline.