Coronavirus: Our global LNG leadership ‘is under threat’

Australia’s global leadership in natural gas production, plus $50bn in new investment and 6500 jobs, is under threat.

A tanker at the LNG terminal in Darwin.

Australia’s economic “golden years” and global leadership in natural gas production, plus $50bn in new investment and 6500 jobs, are under threat from low oil ­prices, capital shortages, new competitors and rising regulation as the world tries to recover from the COVID-19 induced recession.

The $350bn LNG industry, which makes Australia’s the world’s biggest exporter of liquefied natural gas, is approaching a second wave of global investment in new projects estimated to be worth $50bn after an eight-year lull in opening new projects.

The Australian Treasury is considering changing the tax ­regime for LNG projects, which will not be returning maximum tax revenues until the late 2020s.

A new report commissioned for the Australian Petroleum Production and Exploration Association has warned that increasing regulation, investor uncertainty about projects that take years to develop, low oil prices, new international competitors and rising costs are threatening Australia’s prime global position.

The report from global energy analyst Wood Mackenzie warns that the “beneficial” investment environment before 2010, which allowed the LNG boom to occur, is now at risk and made worse by the global economic uncertainty of the COVID-19 crisis.

The report found that Australia’s gas boom in the first decade of the 2000s was built on regulatory and investment certainty, with companies with huge finances willing to commit to long-term investments. But it says financial and regulatory volatility in Australia is rising just as the global economy shifts into uncertainty, lower commodity prices and new competitors arise.

No new major LNG gas project has been commenced since 2012.

The report also says any attempt to increase tax rates “to address perceptions of current under-receipt of tax revenues” is likely to be counter-productive for long-term investment and returns.

The Wood Mackenzie report concludes that: “For now, Australia remains at the forefront of the global energy business but faces both new and renewed challenges to this position — the ongoing prevalence of a high cost development and operating environment, increased new sources of LNG competition, and a sharp reduction in the overall upstream spend the industry is committing each year.”

While the report says Australia’s vast resources and diverse industry suggest the sector will continue to perform well, continued success is not guaranteed.

“Against the backdrop of a challenging macroeconomic environment driving lower commodity pricing in the second half of the decade, Australian fiscal and regulatory volatility has increased,” the report warns.

“In addition to this, upstream competition for capital is becoming fiercer and new sources of LNG are appearing at a rapid rate across the globe.”

Chris Graham, Wood Mackenzie Asia Pacific vice-president energy, said on Thursday the stability of Australia’s investment climate was the key to the successful oil and gas companies investing ­billions.

“However, against the backdrop of a challenging macroeconomic environment and lower commodity prices, Australian ­fiscal and regulatory volatility has increased at a time when con­tinued stability would be highly beneficial,” Mr Graham told The Australian.

“We believe that Australia’s best chance of continuing to ­attract investment — and by extension, success — is to continue the same tact that has made it successful to date,” he said.