Is there more gas to be squeezed out of Bass Strait? That depends on who is doing the squeezing.
A change of control of the Bass Strait joint venture from Texan giant ExxonMobil to Meg O’Neill’s Woodside is a historic moment for the Australian energy field that through its life has pumped tens of billions in oil and gas revenues.
The deal flips the script. Suddenly, the unloved Victorian field moves from a collection of near-depleted wells to something that’s closer to prospective.
In fact, there could be another 200PJ of conventional gas under the moody blue waters, a number that is not insignificant, and if delivered, would fill projected east coast shortfalls into the next decade.
The switch from Woodside as a passive owner to invested operator is significant. It changes the narrative around Bass Strait. Although the ownership of the Esso venture remains unchanged at 50-50 between Exxon and Woodside, the fate of the fields and strategy now rests with an Australian firm, not with a US super-major.
Even as Woodside spends billions overseas, including offshore Africa and now building its Louisiana LNG business, it is much closer aligned to the national interest than the Houston-headquartered Exxon could ever be.
Woodside’s O’Neill herself is a major player in Australia’s energy politics and even more now that she assumes control of Bass Strait which, despite its advanced age, is still the biggest east coast gas supplier.
This gives the Woodside boss much-needed political capital on the east coast as it seeks to expand on the North West Shelf.
Woodside and O’Neill have been sensitive to criticism, while Australia’s biggest energy player was doing plenty on global markets it was doing little for the east coast, where the bulk of industry and households are based.
There’s hope among some big Bass Strait customers that Woodside will also bring greater transparency around how much gas is left under the water and future prospects.
As a tiny field in the hands of the much bigger Exxon, there’s often been a higher threshold for disclosure of resources.
Yesterday the story was Bass Strait is closing down, today with Woodside as operator, the venture now eyeing the development of four new wells with the potential of 200PJ of gas to be sold into the domestic market. Who knows what else Woodside will find out there with a fresh review of exploration data?
Out of gas
With Exxon as operator, Bass Strait’s perennial problem was that it had been competing against much bigger and more lucrative projects when it comes to capital and management attention.
For the low returns and the long shots on offer, there’s next to no incentive for Exxon to throw more money at the field compared to its portfolio of mega-projects around the world. Yet a few hundred PJ here and there could make all the difference to the strained east coast gas market that has been starved following a near decade-long ban on conventional exploration in Victoria (which has now lifted), and a sharp reduction in acreage available in NSW. The Albanese government has also finally come around to gas, last year declaring it a key part of the energy mix in the path to net-zero.
As warnings about an east coast gas shortage grew louder, Exxon found $350m this year (shared with Woodside) to bring on-stream the Turrum field as part of the adjacent Gippsland basin. This was on top of the $200m spend for Kipper 1B last year.
Gas pumped from that project brings more to the market, but has the advantage of extending the life of the Esso venture’s strategically important Longford processing plant into the next decade. However, for Exxon, the outlay was a rounding error in its annual $US30bn ($46bn) global capex spend.
Exxon has been the joint owner and operator of the Bass Strait fields for more than 50 years. First with BHP as its foundation partner, and then that stake was flipped to Woodside as part of the mining giant’s recent $40bn energy exit. Exxon tried to sell its stake a decade ago but didn’t get any significant bites, largely given the massive clean-up liabilities.
For more than a decade, Exxon’s public comments on Bass Strait have been about a managed exit, with a costly decommissioning project of oil platforms and pipelines connecting the mainland already underway. Symbolically, Esso House, the venture’s prominent Melbourne HQ in Southbank was sold several years ago and has since been torn down. The site now sits empty, slated for apartments.
As a non-operator, Woodside has been paying the decommissioning bills but largely along for the ride.
Earlier this year, O’Neill was telling investors to think of Bass Strait as being in a “steady state level of activity” around decommissioning in coming years.
Now O’Neill, herself a former Exxon executive, wants us to think about Bass Strait as a “value maximisation” strategy that aims for further production improvements.
The transfer is not an insignificant commitment for Woodside. Through the change in control, it inherits 600 Exxon staff working on Bass Strait. It is also on the hook for future clean-up costs for new projects it commissions. Exxon is still exposed to existing historical clean-up commitments, but now takes a back seat in driving strategy.
Exxon says it remains committed to Australia, both for upstream and downstream operations. It is a co-owner of the giant Gorgon field with Chevron and Shell.
How an alignment of energy interests changes the fate of production represents a powerful argument when it comes to the fate of another domestic producer and LNG exporter: Santos.
Treasurer Jim Chalmers will have to weigh up whether Santos could be acquired by a consortium led by Abu Dhabi National Oil Company (ADNOC) under a $29bn deal. Due diligence is underway on Santos and any bid will need to be reviewed by the foreign investment review board.
Big ideas
Westpac has reached for the big ideas as part of the bank’s contribution to the Treasurer’s productivity roundtable. Chief executive Anthony Miller has put in a 40-page submission raising areas of reform, particularly for housing, regional Australia and energy.
On housing, there’s a string of proposals to speed up supply. This includes using AI to fast-track development applications to deferring the payment of developer levies so upfront cash can be directed into getting housing built.
Miller says the cost of housing in many cities is making it harder for people to find a home near their workplace and families. For the economy, it is playing havoc with travel times and in some cases creating labour shortages.
Regional Australia is an option to help ease pressure on housing and infrastructure as populations surge across the east coast capitals. Australia should aim for one million additional people in regional Australia by 2032 to help balance out the population, Westpac’s submission says. Targeted economic zones for individual tax offsets could be one tool.
On energy, Westpac calls out the slow approval process in getting renewable projects up. Australia’s approval regime is among “the most complex and slow in the world”, the bank says, with projects facing layers of regulation across local, state, and federal levels of government. It also says gas should be considered part of the energy mix, and discussion around stimulating interest needs to be extended to adding gas-fired peaking capacity to help keep the energy grid stable.
Miller’s Westpac goes slower on whole of system tax reform. This is complex, could take years and should be saved for its own forum for another time.
However, one proposal is to embed 2.5 per cent annual escalation of income tax brackets to ensure taxpayers aren’t double penalised for supply shocks.
“The reality is that the current system relies on periodic, ad hoc tax cuts to avoid the share of household income going to tax inexorably rising,” the bank says in its submission. The proposal for an annual escalation is a more measured approach and reduces the risk that a large tax cut is given at the wrong point in the economic cycle.
Chalmers’ productivity roundtable kicks off next month and the Productivity Commission releases its first interim report on the topic this week.
johnstone@theaustralian.com.au
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