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Interview

Hon. Josh Frydenberg – Minister for Resources, Energy and Northern Australia

Untitled

As Australia welcomes the world for LNG 18, the Hon.Josh Frydenberg highlights the mind-blowing development of Australia’s LNG industry, government initiatives to capitalize on this investment, and his optimism about the attractiveness of Australian LNG in Asia.

When Perth first welcomed the LNG conference in 1998, Australia had only one LNG project, the North West Shelf. The Australian LNG industry has experienced tremendous change in the past 18 years. As the minister with responsibility for resources and energy, what does this formidable development mean for Australia and its citizens?

As the Resources and Energy Minister of Australia, I am incredibly proud of the success of our LNG sector and Australia’s effort to meet global energy needs, as well as of the importance of Australian workers in successfully developing our nation’s LNG capacity.

By 2020, Australia will be supplying around 40 percent of Japan’s gas needs, 40 percent of China’s, and 25 percent of Korea’s.

In 1989 Australia had our first export of LNG from the North West Shelf. Who would have thought that by 2020 we would have ten separate projects and would overtake Qatar as the world’s largest LNG exporter? In fact, we’re the only country in the world to be producing LNG from conventional wells, unconventional wells and of course floating LNG when the Prelude facility is up and running.

Australians should be proud of the scale of these projects. For example Gorgon, at USD 54 billion, is the largest single private sector investment ever in Australia, and has a 99 per cent Australian workforce, and you’re seeing this replicated around the country. The Ichthys project in Darwin has used 750,000 tons of steel to make its gas pipeline. Compare this with the Eifel Tower where they only used 7,500 tons of steel.

In an economic sense, Australia gains enormously from the export income that is earned from our LNG industry. We will be tripling our production from now until 2020 and by then it is expected to be worth more than AUD 40 (USD 28.9) billion in annual export income. But we are also providing important energy supplies to the region which gives us greater strategic strength. By 2020, Australia will be supplying around 40 per cent of Japan’s gas needs, 40 percent of China’s, and 25 percent of Korea’s. Now, through the Gorgon facility, we’ve seen the first contract signed between Exxon and Petronet for gas exports to India. So, we are very much looking to new markets and very excited about that.

The LNG sector already plays a major role in Australia’s economy. How do you foresee this contribution evolving in the upcoming decades?

I am optimistic about our LNG future over the coming decades because of three key reasons.

First, what I call the mega-demographic trends, particularly the increased global population. Between 2010 and 2030 there is expected to be a 23 per cent increase in the global population, while the world’s middle class will double in size. Additionally, we’re seeing hundreds of millions of people move from the regions to the cities as part of growing urbanization.

This is leading to increased demand for gas, and according to the International Energy Agency, the only fossil fuel that will increase as a proportion of the overall energy mix between now and 2040 is gas. The International Energy Agency says that demand for gas will increase by 50 per cent between now and 2040. So, whether it’s in Asia, whether it’s in Europe, whether it’s in the Americas, there is a consistent theme of an increased consumption of gas and that’s driven by demographic trends.

The second reason to be optimistic is because of the global drive for a cleaner, greener future. The carbon emissions from gas are less than those from other energy sources like coal and I think this plays to gas’ strength as an energy source. Importantly, major projects like Gorgon have emphasized responsible environmental initiatives like its carbon capture and storage facility, which is the largest such facility ever built anywhere in the world and will reduce the project’s carbon footprint by up to 40 per cent than what would otherwise be the case.

The third point I would make is that the LNG sector and Australia’s activities are incredibly technologically advanced and there are huge amounts of innovation and automation, and that drives productivity gains. So, for example, Woodside is using underwater autonomous vehicles at their Pluto facility and Santos is partnering with IBM in big data analytics to predict problems on their pipelines before they actually occur.

Combined, with these changing demographics and competitive strengths, Australia is well placed to capitalize on the future growth in this sector.

What are the Commonwealth government’s concrete contributions to foster and expand this formidable LNG boom that is currently transforming Australia’s LNG profile?

The Australian LNG sector has seen USD 200 billion worth of investment in production capacity between 2003 and 2014. The test now is how we create the environment to attract the next wave of investment.

I’m very conscious that we are not the only country in the world that produces LNG. In fact, when I was at CERAWeek recently in Houston, the US had their first shipment of LNG from Louisiana to Brazil, and with the extensions to the Panama Canal, you’ll have the United States exporting to markets including in our region.

So we need to stay very cost-competitive and to do that we are undertaking a number of reforms including in deregulation, such as cutting red tape. Here we have set up a one-stop-shop for environmental approvals in Commonwealth waters and that is saving the industry more than USD 120 million a year in reduced compliance costs. We have also been seeking to reduce the overall tax burden and to simplify our tax system, roll-out key infrastructure and enter into new free trade agreements to gain access to new markets. We’ve recently concluded and implemented free trade agreements with China, Japan and Korea, and obviously you have the 12 nation Trans-Pacific Partnership too.

Despite current volatility in international markets, why should Australia be optimistic about the future of its LNG industry?

With large gas reserves, significant experience in large-scale LNG development, a highly-skilled workforce and close proximity to Asian markets, Australia is well placed to face the present challenges and capitalize on the enormous opportunities that lie ahead in what is truly a golden age for gas.

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