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Interview

Hon. Colin Barnett MLA – Premier of Western Australia

The Premier of Western Australia, the honorable Colin Barnett, highlights the evolutionary changes of Australia’s oil and gas industry, particularly within Western Australia, while positioning the country as a experimental testing ground for the effective exploitation and use of natural gas. Consequently, he also discusses the significance of Perth hosting the world’s largest conference and exhibition on liquefied natural gas, LNG 18, for the second time in April 2016 and depicts the crucial, transitional role that gas will play in countries’ energy profiles moving forward. 

Leveraging your longstanding public tenure presiding over Western Australia, Colin, can you depict how the nation’s oil and gas sector has grown alongside the development of the State?

The biggest transformation in the last 20 years of Western Australia’s economy has been the emergence of the oil and gas sector. We’ve always had a strong mining industry, which dates back to the early 60s and 70s, but it’s really been about the advent of oil and gas from the 90s onwards. In 2014 – 2015, petroleum production accounted for almost 25 percent of the total value of mineral and petroleum sales for WA, making petroleum the second most valuable commodity after iron ore.

Western Australia is a third of continental Australia—a vast landmass boasting 2.5 million sq km. There are only 8 countries in the world that have a bigger geographic area. Therefore, our energy advantage lies in our world-scale natural gas resources.

However, despite Australia’s oil and gas industry having substantially developed over the past few decades, the exploration frontier remains fruitful with widespread prospects of new discoveries. For instance, the Carnarvon Basin—located 1500 km north of Perth—still boasts estimates of 100 tcf of resources. There’s still a plethora of undeveloped fields in the area, with some ambiguity as to how far exactly they extend out to the sea. Further up north, the Browse Basin has 56 tcf of conventional gas resources based on estimates from July 2015, but is yet to produce a single molecule. So, Western Australia, especially, is still highly prospective for its natural gas resources.

To what degree are you seeing companies exploiting unconventional resources to secure a share of the nation’s tremendous exploration potential?

The Department of Mines and Petroleum estimates that the potentially recoverable shale gas resources in the Canning Basin could be up to three times the size of conventional resources in the Browse Basin. The State also has an estimated 91 – 193 tcf of shale gas resources in the Canning, Carnarvon, and Perth Basins, as well as 86 tcf of tight gas resources in the Canning and Perth Basins.

The Perth Basin is prospective for new domestic gas developments. Recently, AWE and Origin gave financial approval for the first stage of the Waitsia gas field. Initial capacity will be 10 terajoules a day, starting in August, with possible expansion to more than 100 terajoules a day, equivalent to 10 percent of WA’s daily domestic consumption

WA’s shale and tight gas industry offers many opportunities for development but the sector is currently in the early, proof-of-concept phase.

Especially considering its level of capital investments, how is Australia effectively molding the global landscape for oil and gas in your opinion?

Australia is an interesting case study involving natural gas. The country has almost become a laboratory for developing the natural gas industry. The first major gas production coming from Western Australia, the North West Shelf (NWS) project, has focused on developing conventional offshore resources and bringing them onshore for processing. The NWS initially began supplying domestic gas, but later went into LNG exports in 1989—still remaining the nation’s largest source of LNG exports. Together with the Pluto project, these two plants produce roughly 21 mtpa of LNG. In recent years, we’ve also had the explosive development of coal seam gas (CSG) on the East Coast, with the first of its kind CSG to LNG projects—Queensland Curtis LNG, Asia Pacific LNG, and Gladstone LNG—boasting a collective capacity of 25 mtpa.

Furthermore, the world will soon experience the onset of floating LNG (FLNG), and while the concept is not particularly new around the world, nothing has ever been initiated on this scale. In the pipeline, we have Shell’s massive Prelude project, which was the first FLNG project globally to reach a final investment decision, and the first to commence construction. Depending on market conditions, we also prospectively have the Woodside-led Browse project, which will have three of these FLNG productions.

Then in the far north of Western Australia, there’s the presence of deep shale gas, generally located at depths of two to five kilometers—independent of any environmental challenges that might be associated with coal seam gas such as proximity to water supplies and residents.

We’ve touched upon conventional reservoirs, shale, coal seam, offshore, onshore, deepwater, floating, and even pipeline gas. So, there’s every variety of technologies and resources that’s either currently in use or will be used here in Australia.

How can we expect the investment climate to shift as the majority of megaprojects transition from construction to operation?

It’s been a rapid transformation since the nominal volumes of LNG we began exporting in 1989, especially considering that aside from the NWS there were no other major projects committed until Pluto in 2008.

Currently, Western Australia is the country’s largest contributor to petroleum production, accounting for 63 percent of natural gas production (including natural gas, coal seam methane, and LNG feedstock); and 62 percent of crude oil and condensate production in 2014 – 2015. And these figures will continue to grow as Chevron’s Gorgon and Wheatstone projects come online—pushing the State’s production capacity to around 50 mtpa. By the end of the decade, and with the large contribution of Western Australia’s LNG projects, Australia will have overtaken Qatar’s production capacity and could take the position as the largest LNG producer in the world.

In September 2015 there was $152.9 billion worth of LNG projects under construction, and $74.5 billion worth of projects under consideration in the State. Following a decade of unprecedented investment in greenfield projects, we expect that future investment is more likely to come from brownfield expansions or new gas field developments tolled through existing LNG facilities, as companies explore lower-cost options for growth.

Will the downturn in commodity prices threaten the realization of Australia’s ambitions in becoming the leading producer of LNG?

The expansion of existing and future projects indicates that the market is there. Gas production will continue to grow in Australia within the next 20 years, especially given all of our key advantages for customers, producers, and investors alike: significant undeveloped resource base, political stability, sound rule of law, established business culture underpinned by integrity and trust, and perhaps most crucially, our proximity to the major consumer markets. Despite increasing sales in Europe, the LNG customer base is still largely centered around Asia—specifically Japan, Taiwan, Korea, China, and even India.

As to the market, the falling commodity prices could slow down the growth of gas going into markets. However, the fundamentals for long-term gas demand remain present—especially considering the global push for cleaner economies. Historically large consumers, China and India have both demonstrated strong intentions to reduce pollution and adopt cleaner sources of energy such as gas—both in terms of industrial and residential users. Cheap coal and oil have certainly impeded that process, but I believe that’s only temporary. The recently established COP 21 agreement, if nothing else, indicates the monumental scale that climate change has achieved in political agendas across the world. The pride and political will, particularly in these emerging countries, will become increasingly important as environment-related, health-driven reforms edge into the global spotlight. Therefore, while price will also pose as an issue given its cyclical nature, LNG offers supply security, especially in coastal countries, while serving as a pivotal medium in transitioning to a low-carbon economy.

Regarding the topic of climate change, how do you perceive the role of hydrocarbons changing as the country pivots towards a low-carbon economy?

Renewables are growing, as they are around the world. Technical advances in such technologies and their affordability is a big factor—evident in the widespread adoption of solar panels in Perth recently.

In terms of base load power generation, the debate primarily involves nuclear, coal, and gas. Gas plants produce half the emissions to a third of a coal plant. The concept of clean coal has been proved somewhat of a myth. Gas has been a little too intertwined with discussions surrounding fossil fuels in recent years, and industry stakeholders should be wary, as gas is a comparatively clean fossil fuel that burns quite easily.

Australia won’t go nuclear for a long time. We’re nearly 50 percent powered by gas here in Western Australia, and our policies moving forward will focus on increasing gas usage through pipeline distribution. Additionally, we have domestic reservation policies where the LNG projects that are primarily exports have to reserve at least 15 percent of their production for the domestic market—much of which helps fuel power generation for the $100 billion mining industry. So, there is, and will continue to be a large-scale market for gas, if not coal or oil.

In April 2016, Perth will host the 18th conference and exhibition on liquefied natural gas, largely known as LNG 18. Can you elaborate on the significance of this event, and how it’s indicative of city’s unparalleled evolution into a major oil and gas hub?

Perth is actually the only city to have been selected to hold this triennial event more than once, having last hosted LNG 12 in 1998.

LNG 18 provides a major opportunity to promote the State’s petroleum resources and its role as a global energy supplier, and Perth as a major center for expertise and services. This prestigious event is expected to attract more than 5,000 participants, including many of the most influential voices in LNG from industry leaders to government ministers, and producers to consumers.

I’m sure many will enjoy the physical transformation that Perth has undergone, and the industry itself is located around the technology hubs that have developed here; there are more than 700 global and local energy companies and petroleum equipment, technology and services companies now based in Perth. WA is also home to the global technology divisions of Chevron, Shell, Woodside, GE Oil & Gas, Cisco, and IBM.

The conference serves as a truly unique platform with all the different types of gas sources and technologies being applied in one jurisdiction. So, it’s a great forum for exchanging best practices not only on the economics and policy aspects, but also science and technology—which will only further ignite the expansion, presence, and awareness of the LNG market moving forward.

Coming from the perspective of probably the only state minister that has had the pleasure of hosting LNG twice, how do you anticipate the discussions and overall sentiment surrounding the LNG industry differing compared to two decades ago?

The discussions will center more on government policies and international cooperation, and more broadly, how natural gas will be able to compete with low-priced oil and coal. Though it might not be able to compete on price so much, I’m convinced natural gas will win over political battles and drive government decision-making moving forward.

But I also think there’s a degree a symbolism representing a landmark transition. As Australia pivots into the world’s leading LNG producer, the central and traditional focus will gradually shift away from the Gulf States. Though, they will certainly remain important, especially in Europe and the sub-continent.

Furthermore, when the LNG 12 took place here in 1998, the dominant suppliers were Indonesia and Malaysia in this part of the world. Indonesia is now transitioning into a net importer and Malaysia is protecting its remaining reserves for domestic usage. So, Australia has very much taken over the spotlight in the Asia Pacific region

Do you have a final message for our readers?

In my view, gas will serve as the world’s major transition fuel for the next 25 years at least, after which point, renewables and nuclear may become more prominent. Countries need to make more of an effort to clean up their cities, and the simplest way to do that is by reticulating natural gas—whether that comes from pipeline sources or sea borne cargoes of LNG. In doing this, producer countries like Australia need to work with the customers. We need to be able to give them competitively priced gas and the security of long-term supply—effectively enabling the transition towards cleaner economies. This doesn’t necessarily mean the end of coal, but the world will be failing if it continues allowing coal production and usage to grow. We’ve got to cap coal and let future growth primarily hinge on natural gas, then other forms might take over after a few decades.

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