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Hon. Bill Marmion – Western Australia Minister for Finance; Mines and Petroleum

The Hon. Bill Marmion describes the pivotal role that oil and gas plays in supporting WA’s economy, while emphasizing the fundamental traits of the state’s favorable investment climate. He also highlights the current focus of his leadership mandate, which includes red tape reduction and building local and international relationships. Marmion also discusses the continued prospects of Western Australia’s exploration frontier.

To begin, Bill, can you start off by describing the importance of WA’s oil and gas sector, and how it’s contributed to the continued growth and prosperity of this state?

In 2014 – 2015, WA’s oil and gas sector was valued at $24 billion, producing 63 percent of Australia’s petroleum, with the broader resources industry directly employing an average of almost 106,000 people and further indirectly supporting an estimated four times as many jobs. Today, WA is still Australia’s fastest growing state, despite slowing mining and petroleum construction.

The genesis of Australia’s, and more specifically Western Australia’s, oil and gas industry dates back to the 1950s, with West Australian Petroleum (WAPET) supplying the country’s first commercial quantities of oil from the Bass Strait. Soon after that dried up, Woodside made substantial offshore gas discoveries in the North West Shelf (NWS) and bold moves in developing onshore LNG processing technology in Karratha, Western Australia – thereby jumpstarting the LNG export industry with initial shipments going to Japan. The NWS Venture is Australia’s largest resource development project, spearheaded by a consortium of six partners, including Woodside, BP, Shell, Chevron, BHP Billiton, and a Japanese joint venture composed of Mitsubishi and Mitsui (MiMi). One of the most important aspects to have been revealed after the undertaking of this massive project is the fruitful prospect of hydrocarbon development in Australia and the vast potential of this resource-laden country.

To what extent do you see Australia pushing the boundaries on industry innovation, and what initiatives have you undertaken to maintain this position as a technology leader?

Whilst in the 80s, we were a relatively new country, the country has come to accumulate a vast knowledge base, in turn, giving way to some of the most widely used technologies and operating standards in the world. For example, roughly 60 percent of the world’s mining companies are now using mining software originating from Australia. The relatively new concept of autonomous mining was also pioneered in this country, now gradually experiencing industry-wide implementation.

We’re constantly building on our global resources research and technology leadership. In 2015, I helped open the $48 million CSIRO National Geosequestration laboratory in Perth, promising to help lead world carbon capture technology. Perth has also been flagged as the site for the planned Australian Energy Resources Growth Centre, which will work with the oil, gas, coal and uranium sectors to unlock commercial opportunities and drive innovation by building links between businesses and industry organizations and the science and research sectors.

In line with this growing cluster of technological excellence, IBM, CISCO, CSIRO, Chevron, and Oceaneering are among the global players that operate or have recently opened international research or technology centers in WA.

Despite the current slump in oil prices, WA has largely remained an attractive destination for petroleum investment. What are the underlying factors contributing to this level of unwavering appeal?

In turbulent times like these, the security and certainty offered by WA’s governance puts us ahead of many other investment destinations. The State is rated as a global “top five” investment destination because we’re constantly making it easier to do business, through online innovation and streamlining approvals across government. We have delivered extensive reforms and continuing the reform process through listening and responding to industry feedback – maintaining the State’s royalty system, as an example. We also encourage exploration and discovery through the $130 million Exploration Incentive Scheme (EIS) and leading geoscience that’s made deep geology maps and detailed analysis available worldwide. Essentially, our focus is, and has always been, on driving certainty and confidence through stable regulations conducive to attracting foreign and national investment. Consequently, our successes have been recognized in the latest Fraser Institute Petroleum investment rankings, with WA jumping 17 positions to 33rd out of 126, based on trade barriers, taxation, and certainty around environmental regulations.

We’re also close to the major markets in Asia-Pacific, with Japan and China naturally at the forefront. But our proximity also extends to places such as India. Although there have been significant supply-side pressures with regards to oversaturation, companies have been successful in establishing long-term contracts with stakeholders in many of these markets.

Especially given the current pricing environment, how would you assess the current potential of Western Australia’s exploration frontier—especially now that many of the low-cost, high quality fields have already been depleted?

Western Australia has been blessed with a large abundance of fields dispersed across the region in both offshore and onshore deposits. Australia’s gas exports are currently hovering around 50 mtpa – with the majority of additional capacity coming from WA as projects including Gorgon, Wheatstone, Ichthys, and Prelude come online in the next few years. Many of these LNG plants will focus on processing gas from offshore reservoirs, but in fact, Western Australia has two onshore basins, Canning and Perth, that boast 2.5 times the amount of offshore reserves, much of which is attributed to untapped shale or tight gas.  However, the onshore basins are located approximately three kilometers below ground, requiring expensive and complex technical solutions that constitute longer-term investment horizons. Overall, WA’s exploration frontier still poses tremendous potential for oil and gas players.

With regards to exploiting the potential of unconventional gas, do the environmental implications recently displayed by civic activists and environmentalists alike actually warrant a cause for concern in your opinion?

The most prospective frontier for unconventional gas in Australia, the Canning Basin, is also one of the most isolated areas in the world.We have stringent conditions regarding the use of hydraulic fracturing fluids in Australia and can  reject the use of a particular fluid if certain characteristics are not met. Coming from an engineer’s perspective, the potential environmental impact of hydraulic fracturing at depths of 3km is minimal and manageable. The recent report into the Implications for Western Australia of Hydraulic Fracturing for Unconventional Gas found risks from this potentially important production process were manageable.

Overall, Western Australia has made substantial capital investments in LNG projects, many of which are now starting to come online. How will you, as WA’s Minister for Mines and Petroleum, go about ensuring that there’s another wave of investment looming in the horizon?

When Gorgon and Wheatstone reached final investment decision (FID), the pricing environment was much more favorable. And although investment activity has definitively slowed down, there are still instances of companies pursuing long-term plays in the current climate. Woodside’s Browse Basin project is perhaps the most notable. The company plans on employing FLNG technology to develop the three fields in this basin: Brecknock, Calliance, and Torosa.

As they’re situated approximately 425 kilometers off the northern coast of Western Australia, the Browse resources fall under Commonwealth jurisdiction. However, based on recent technical data provided by Geoscience Australia, it was determined that a set of reefs sitting on top of the Torosa gas field, Scott and Seringapatam, actually belonged to Western Australia – increasing the State’s interest in this lucrative gas field from 5 percent to 65 percent, which amounts to roughly $1.5 billion of additional royalties. The Browse FLNG project is set to receive FID by mid 2016, and coming from the vested interest of the state in terms of economic and social impact, we’re very keen to see a green light.

But, overall, one of the state government’s highest priorities remains creating an environment that encourages exploration and promotes opportunities for energy investment, while also structuring the regime in a way that promotes the utmost sense of transparency, clarity, and equity. There is no doubt that underlying long-term market conditions remain robust, and the state is well positioned to attract a new wave of investment in the resources sector.

From your perspective, how has labor supply and demand shifted in tandem with the cyclical market fluctuations?

The previous commodity boom and skills shortage caused labor costs to skyrocket. The situation is almost completely opposite now with the contraction of commodity prices and megaprojects including Gorgon, Wheatstone, Ichthys, and Prelude come on stream. Now, when companies such as Woodside reach FID for their respective projects, they’re about to capitalize on the already existing talent located around Western Australia, particularly Perth, at much lower costs than just a few years ago. That being said, however, the inherent nature of this sector is cyclical and the dynamics can easily change in a few years time—requiring companies to truly evaluate all possibilities and incorporate the encompassing risk into their decisions moving forward.

To ensure a consistent supply of skilled labor, now and in the future, we have invested strongly in Perth’s Australian Center for Energy and Process Training (ACEPT), which has trained 4,000 oil and gas workers since starting in 2008, developing a national and international reputation for excellence.

Is the current regulatory environment adequately structured to capitalize on the resource potential laden throughout the state? How can it be improved?

As the Finance Minister, I am also responsible for driving the government’s continuous red tape reduction program, to grow the economy, boost productivity and provide direct financial benefits to Western Australian businesses and families. When it comes to environmental oversight, particularly in offshore, we’re collaborating with the Commonwealth to reduce bureaucratic duplication as much as possible and implementing more of a “one-stop shop” system. WA’s petroleum industry is set to save up to $100 million in annual compliance costs, following the federal government’s move to make the National Offshore Petroleum Safety and Environmental Management Authority (NOPSEMA) to sole assessor for environmental approvals.

Often times in government, whenever a problem arises, a new rule is made to patch it up. This process keeps on going until there’s a entire maze of frustration before companies or individuals are able to successfully navigate all the regulatory hurdles required to initiate a new venture. Fortunately, from last year an agreement between the Commonwealth and WA provides a single assessment on matters of national environmental significance that satisfies both State and Commonwealth government requirements. Furthermore, in oil and gas, a lot of the projects are located offshore and technological advancements have culminated to a point where physical and environmental risks are minimized—albeit still the primary and foremost concerns for operators and regulators alike.

Do you have a final message for our readers?

If you want to invest in oil and gas, Western Australia is the place to be. We are building on the resources construction boom to ensure WA continues growing as a global investment and technology hub, delivering even more high-skilled jobs and business opportunities. Petroleum, now 22 percent of WA resources sales, is already second only to iron ore in value to WA and is set to grow strongly. While the resources industry has been facing challenging times, WA’s fundamentals are stronger than ever – a world-leading and innovative petroleum sector in close proximity to the world’s fastest growing markets, providing unique advantages.

Furthermore, apart from the wonderful Mediterranean climate, the state itself boasts transparent regulatory frameworks and royalty regimes – ideal for conducting business and, in turn, facilitating success. Western Australia has a stable economic landscape, a robust legal system, and a face-to-face business culture that’s underpinned by integrity, cooperation and goodwill.

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