Australia Bids to Improve Oil, Gas Investment Climate

"Rising costs have become a significant challenge for companies doing business” in Australia Shell’s CEO Peter Voser told the APPEA Conference & Exhibition in Brisbane earlier in May.

Commercial, including cost, consideration was also cited by Woodside Petroleum Ltd. for its decision to drop the Browse LNG onshore project at James Price Point in northwestern Australia.

“Unfortunately the cost escalation has been such that the total costs for Browse have resulted in the current development not being commercial," Woodside CEO Peter Coleman told analysts at Company Insight April 12, adding that the firm has also “seen an increase in both environmental and administrative compliance requirements and procedures.”

Wage pressure also contributed to cost issues weighing on Australia’s attractiveness as an LNG investment hub. The country topped the list of a worldwide survey on annual salaries for the industry. Limited skilled labor pools and significant workloads helped keep annual salaries high in Australia at $163,600, almost 35 percent higher than the $121,400 in the United States, the “Oil & Gas Global Salary Guide 2013” released in February by Hays plc and an industry partner indicated.

Industry association APPEA suggested in September that the government considered introducing a stable fiscal framework as the taxation regime over the previous five years has been disruptive. The Labor Government’s introduction of the controversial carbon tax, which is not borne by international competitors, adversely affected local petroleum producers, APPEA commented.

Carbon tax did prove to be a financial burden for Santos Ltd., one of Australia’s leading hydrocarbons producer. In August, the firm reported lower earnings for the first half of 2013, citing the carbon tax for the lower revenue. Santos paid $32.6 million (AUD 36 million) in carbon-related costs for the period as part of a total tax bill that reached $173.8 million (AUD 192 million).

Another issue that dented Australia’s appeal as an LNG investment hub is the existence of red tape and green tape. This created a duplicative and inefficient regulatory approval processes as there is an overlap between federal and state government regimes. As such, projects were unnecessarily delayed, while the increased costs did not bring about additional environmental benefit, APPEA said.