Mr Burns says there could even be a silver lining to the price drop in that the focus on costs could see the onset of a new rational mindset in the industry.
“The oil and gas sector has experienced rampant cost escalation over the past six years as the LNG industry ramped up. But with industry employment now past its peak, we should hopefully see costs coming down, which will force companies to become more efficient and improve the economics of future resource extraction.”
Echoing Mr Burns’ comments, Citigroup Head of Energy and Utilities Research Dale Koenders says reduced oil prices would result in flat to lower industry costs, spurred on by a falling Australian dollar.
“A depreciating Australian dollar will help with projects which have a large component of Australian labour i.e. onshore Australian LNG. Lower oil prices often increase focus on cost control, and recycling engineering design to improve project returns,” Mr Koenders says.
Mr Koenders foresees a scenario where future gas projects could achieve similar returns to that anticipated in a $US90/bbl world, with the 15 per cent reduction in long-term oil prices offset by 15 per cent operating expense and capital expenditure savings.
With a view to the future, Mr Burns says the unprecedented growth in gas demand on the east coast, thanks to the start-up of the LNG export industry, is a huge untapped opportunity.
“We expect there to be a bigger focus on offshore Victorian gas exploration over the next five to 10 years – liquid content helps. Mid-tier acreage in Queensland could also be developed, given its proximity to the LNG projects.
“Focus needs to be on finding and developing the lowest cost gas resource, close to existing infrastructure and demand centres.”
Despite a number of high-profile project cancellations and major oil and gas companies having to substantially cut their expenditure due to the oil price drop, the natural gas industry in Australia seems set for some exciting times, low oil prices
or not.
Featured in Gas Today Autumn 2015