Australia Faces New Challenges Attracting LNG Investments

“The simultaneous development of multiple LNG projects has contributed to the rise of LNG project costs, making Australian projects increasingly expensive,” Peter Cleary, vice president of LNG Markets and Eastern Australia Commercial at Santos Ltd. told the 8th Asia LNG Summit in Beijing, China.

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Looking ahead, the Australian petroleum industry continues to face cost pressure. Recent data released by ABS and APPEA showed the number of offshore wells drilled in the country fell by over two-thirds since 2003, but the total average drilling cost is more than five times higher at over $120.7 million (AUD 130 million). The country spent $374.5 million (AUD 500 million) drilling 60 offshore wells in 2003, compared to $2.2 billion (AUD 2.5 billion) for 20 wells in 2013.

“These figures reflect a range of factors, including higher daily rig rates and the fact that drilling is shifting further offshore to deeper, more remote and more difficult waters … [but] the increase in drilling expenditure reflects broader cost pressures,” APPEA Western Region Chief Operating Officer Stedman Ellis remarked in a May 26 press release.

“Australia is already at the top of the cost curve for bringing gas to market. Greenfield projects in this country can be almost double the cost of new LNG competitors in East Africa, North America and other locations,” Ellis said.

The issues with high cost will continue to weigh on Australia’s attraction as an LNG investment destination.

“Development cost is ridiculously high and Australia is way down on investors’ list … given its difficulties with unions, low productivity … a 10-30 percent reduction in cost is needed. I can’t see any new [onshore LNG] projects being sanctioned under the current cost regime,” Tony Regan, energy consultant at Tri-zen International Pte Ltd. told Rigzone.