Santos says sovereign risk sparking cutback in energy investment
Santos CEO Kevin Gallagher says heightened sovereign risk levels have spurred energy giants to slash investment in Australia.
Santos chief executive Kevin Gallagher has raised concerns heightened sovereign risk levels have sparked some of the world’s biggest energy companies to slash investment in Australia amid an oil price crash that has already decimated spending on major projects.
A year after ConocoPhillips raised concerns over potential federal government intervention in Australia’s energy sector, he said the retreat of the US giant and several of its peers was a worrying sign for the industry.
“Recent indications before the pandemic indicated Australia was becoming a little bit higher with sovereign risk,” said Mr Gallagher, who is also chairman of oil and gas industry body Appea.
“You can see recent announcements with ConocoPhillips selling its North Australian assets, Eni announcing it wants to sell out of its Australian position and even ExxonMobil — who have been here forever — indicating that they may sell their Bass Strait assets. If you put all that together, that’s a worrying sign.”
Conoco sold its North Australian assets including Darwin LNG stake to Santos in a $2bn deal while Italy’s Eni is trying to offload its Australian oil and gas assets and Exxon is on the hunt for buyers as it seeks an exit from the once prolific Bass Strait. The sell-downs partly represent a response to the biggest oil crash in a generation which has stripped bare balance sheets and seen some of the world’s biggest energy producers slash spending .
More than $60bn of investment decisions on major Australian growth projects has been deferred including Woodside Petroleum’s Scarborough and Browse projects with Santos delaying an investment decision on its $US4.7bn Barossa project over the oil plunge and coronavirus volatility.
The Santos chief said Australia needed to focus on rebooting investment as it emerges from its economic lockdown.
“As we compete with other nations and as we start to come out of this pandemic and we look to grow our economy, there has to be a very strong focus on incentivising and encouraging investment to come back to Australia,” Mr Gallagher said.
“It’s very important we create the right investment environment for that capital to come our way.”
Australia toppled Qatar last year as the world’s largest LNG exporter following a $200bn spending spree, but the immediate investment pipeline is more modest with the crude market ructions delaying planned spending. The industry must avoid “rent-seeking” from the government and instead ensure it was working to serve up projects that would attract investment.
“A role that Appea and our industry can play is to not rent seek ourselves. I don’t think we have a history of that and we tend to stand and fall on our own merits,” Mr Gallagher said.
“My advice to governments is to create a free market environment — don’t think about subsidies, don’t think about supporting any one sector over another but focus instead on freeing up the bureaucracy, the green tape and the red tape to compete on a fair basis against those other countries we are competing against.”
Australia faces a $20bn plunge in LNG export revenue in 2020-21 due to plummeting oil prices in a hit three times as large as official government forecasts, consultancy EnergyQuest has estimated. Gas export revenues in the next financial year could tumble by 40 per cent to $30bn from $50bn in 2019-20 as oil crash has sliced prices in half to $US30 a barrel.