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Interview

with Matthew Paull, Director, Queensland and New South Wales, APPEA

09.12.2010 / Energyboardroom

Belinda told us in our interview that Queensland was originally the birthplace of the Australian oil and gas industry. This is the only APPEA office outside of Canberra and Perth. So what does this say about the importance of Queensland and New South Wales for APPEA today?

Its importance is certainly growing. The Queensland office was established about two years ago with one person, now we have three, and this office also covers New South Wales, that sort of growth reflects the huge growth in the industry over in the eastern states.

What were the first objectives when you arrived?

For any new industry, there is a need to refine the existing rules and regulations, so there was a large amount of work going on in the Queensland government in particular to produce new regulations for the coal seam gas industry, covering things like water and land access and so on.

Over the last five years it seems as if there has been a big shift in Australia in terms of moving from oil and coal to the potential of the gas industry. Obviously east coast is going to play an increasingly important role in that. In terms of adjusting as an organisation which has existed for 50 years, how have you made changes in the way APPEA is focused?

I’ve been with the organisation for fifteen months, so Belinda is probably best placed to answer those sorts of questions. But I think that the focus has always been the petroleum – at first we were the Australian Petroleum Exploration Association, now we are the Production and Exploration Association, but it was always petroleum. Historically, oil was the prize because that was where the profit was, but in recent times the price of gas has increased and LNG exports have become a lot more feasible. We’ve had an LNG industry for some time and obviously it has been going through a fairly large growth phase recently. So in terms of the way APPEA has approached things, I am not sure whether the basic approach has changed or we and our focus have evolved with the industry in Australia.

You have these three offices. Perth is going to be focused very much on the offshore industry, and here you are looking at dealing with this growing onshore industry. In terms of dealing with these two very different operations from the way the government looks at them to the policies that are being put forward in order to deal with onshore and offshore, how would you say that your mandate here in Brisbane differs from the office in Perth?

We are a national body, so we do have a national focus. We don’t say one thing in Queensland and another thing in Western Australia. So where we’ve got similar issues, we will take similar positions. But the Coal Seam Gas industry operating onshore in areas where the population is a bit higher than in the traditional onshore areas in the Cooper Basin, that dynamic comes with some different issues in either the Cooper Basin or offshore.

I saw that there has been a lot of things in the press about the environmental impact of the gas industry as it grows here. Do you think that this will be a major problem?

It is an issue that the industry takes seriously, and to some extent it is driven by its being a new industry. When you have a new industry, people tend to quite reasonably have questions about it. The industry has put a lot of effort, as we have, into trying to answer some of those questions that people are raising. Those questions are all getting answered. Most of the concerns that were being raised were already being addressed by the industry and by the government, on things such as ground water and hydraulic fracturing. The industry has always said on those particular issues and on others that there is an answer to those questions, there is every reason to believe that there will be minimal to no impact on other aquifers, that hydraulic fracturing is a safe technology, and for my part what the industry has been saying for some time has been verified for a second time around with the commonwealth approvals. The Queensland government already said yes okay, we accept that and will keep a close eye on how the industry develops to make sure that our original judgement was correct. But they basically said they accept what was being said, and that’s now what the federal government has done as well. So we’ve had two very intensive environmental approval processes, and they have both come to the same conclusion, that we believe what the industry is saying.

When we did the first part in WA, the tax issue wasn’t so much of an issue because the PRRT was already in place on offshore fields, so the MRRT wasn’t really an issue for the offshore industry. What’s the situation today for the new government? How is it looking for the industry? My general understanding is that people are more optimistic although nothing concrete has come down from the government yet in terms of this new tax regime?

Tax is not something I’m particularly close to. I could tell you some basic stuff. The basics are that they are extending PRRT onshore, and this is something that the industry offshore has been dealing with for quite some time. There are some issues with how it’s administered and decisions about eligible expenditure and so on, but we’re not going to say that the PRRT is a tax that won’t work onshore, because it works offshore.

With these LNG projects being built, there is obviously a lot of interest in the gas industry here, but until they are built I guess the gas industry here is focusing on the domestic market – what’s being produced now is providing energy in Queensland and New South Wales. So how would you assess the situation so far in terms of the government pushing the advancement of gas in the overall make up?

The Queensland government in a way kicked off the CSG industry with their policy to require … to mandate gas use for large consumers. They’ve increased the proportion a few times since then, but other than that it has all been driven by the industry itself. In New South Wales, there is no similar policy. They put that policy in place ten years or so ago, and that provided not an incentive but a mandate that you have to use gas, so that did help the industry along. We always argue for a level playing field, but there is no denying that that helped the industry.

We’ve mentioned these LNG projects that are up and coming a few times. Obviously this is going to be a major focus for the next few years for the industry. So as an association based here in Brisbane being able to help your members will be quite important. What are you doing at the moment to advance the interests of your members?

We work on most or all of the industry-wide issues associated with the petroleum industry, as we do nationally and in WA. As I said we work on standard environmental conditions (not project ones), we have been active in the debate on the water regulatory framework. We do work on improving the safety performance of the industry and it has improved quite considerably in recent years; strategic cropping land, the policy that came out, we‘ve been involved in that public housing policy, anything and everything really.

How would you describe the view of these LNG projects now given the global gas situation? We have seen that there is not as much optimism globally about the future of the LNG industry for a number of factors. How have you seen this affect the projects that are planned here?

It’s perhaps a question… I wouldn’t want to speak on behalf of the proponents, but I think sentiment about the LNG industry moves around over time. It’s certainly a very competitive industry. Any LNG project is under competitive pressure. There are three tonnes of LNG supply chasing each tonne of demand in Asia Pacific, but the industry set some targets for growth in the Australia. They are realistic targets, they are not blue sky targets, so absolutely we can see a continued growth in the LNG industry in Australia. There is no reason why that shouldn’t happen.

Do you think in the short to medium term that the biggest competition will come from international competitors or will there be a lot of national competition between these different projects?

I think competitors are competitors. Whether national or international you are chasing the same customers. It’s a highly competitive market in Australia and internationally.

In the Asia pacific market Australia is competing against countries like Qatar that have lower construction costs, better tax rates and more capital friendly project depreciation. What can Australia do in order to make sure that it is competitive in these markets?

APPEA has some set positions on things such as taxation and greenhouse and so on, and basically we think those sorts of government regulations that apply to the Australian industry or any international Australian industry should be set with reference to who we’re competing against. We need to be competitive; we need competitive depreciation rates and so on, to improve our performance against other countries. Our advantages in LNG rest in other places at the moment, things like stability and reliability. I think LNG is not just about the gas price that you can get or the cost of construction, it is also about delivering what you’ve promised to deliver when you said you would deliver it. And there are customers who will pay – that is the most important criteria for them and they will pay for that. And also you want to… with energy supplies it pays to diversify. So as a customer you’re not going to want to put all your eggs into one basket. There are a number of reasons why people would want to buy Australian LNG, but more competitive fiscal regime and a greenhouse regime that doesn’t disadvantage the clean fuel are the sorts of things we would be looking for.

One of the big issues that Belinda was talking about when we interviewed her back at the end of April this year was that with this growing industry there was a massive labour shortage and a big need to train new staff and get people on board for these projects. So what’s happening here in Queensland to ensure that there is the workforce to supply these new projects and how much of an issue is it for APPEA today?

It’s an issue across Australia. There are a number of initiatives in place to train domestic workers – the Queensland government has some initiatives, companies are doing scholarships themselves, I think the feasibility of a petroleum engineering course at Queensland University is being looked at.

At a national level APPEA is looking at what it can do to help. It is more of a national issue – labour is quite mobile these days so it is not something that you can just look at Queensland or New South Wales or Western Australia.

That’s something that I was interested in – it varies from country to country, and this is quite a large country – how mobile is the labour force in Australia?

It all depends on the person, but I have read newspaper stories which have mentioned people doing fly-in and fly-out working across the country. At the same time, you want to give something to your local community, you do want to source as much of your labour as you can from your local communities.

Now preparations for your conference in 2011 are already underway. What do you expect are going to be the big issues on the agenda by April? Do you already have an idea of what is going to be discussed at the conference?

I think we’ve obviously started to put some thought into it, I couldn’t tell you how the agenda is progressing.

What do you expect will be coming from Queensland?

I would hope from Queensland you would be seeing some positive FIDs before the conference.

What are your hopes for the next few months in terms of the development of the oil and gas industry here in Queensland and in New South Wales?

I think the industry has got a very bright future. We’ve seen we’ve had two projects receive state and federal environmental approvals, and it is full steam ahead for the industry here, and New South Wales is growing as well, showing a lot of potential. So in the next six months I would hope that we have at least one LNG project that’s getting built, and hopefully more!

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