APPEA review: Cooking with gas?

Gas is on the verge of being Australia's dominant energy source, a major energy exploration industry convention in Adelaide outlined this week. But many obstacles still need to be cleared.

The entertainment included clowns on stilts at the opening cocktail party and Tina Arena at the dinner dance, but the oil and gas industry was all business over three days in Adelaide this week.

The South Australian capital did all right out of the Australian Petroleum Production and Exploration Association annual conference, too. It pocketed an estimated $8.5 million in extra revenue from the 3000 delegates. To which you can add that most of them paid Qantas and Virgin to get to Adelaide.

More than 150 booths crammed in to 10,000 square metres of exhibition space was also colourful testament to the billions of dollars flowing to goods and services businesses from the booming upstream petroleum sector.

Deloitte Access Economics says the value added contributed to the national economy by the sector’s supplying firms alone adds up to about $4.3 billion. It estimates that the oil and gas industry as a whole contributes more than $28 billion in value-added.

The biggest rainmakers, of course, are the large LNG export projects being developed in Western Australia, Queensland and the Northern Territory. Deloitte says that collectively they represent more than a third of all current Australian business investment.

Additional testament in Adelaide this week to the industry’s heft came in the presence of the South Australian premier and his energy minister, the Northern Territory chief minister, the NSW energy minister, federal resources and energy minister Martin Ferguson and his Coalition opposite number Ian Macfarlane – plus 50 journalists from around the country and overseas.

Speaking of overseas, the event drew delegates from 34 other countries.

This is a far cry from the 1981 Adelaide APPEA conference, the first of eleven I oversaw in my tenure as the association’s chief executive, and which we fitted quite easily into a North Terrace hotel.

The other big difference between 1981 and 2012 is that 99 per cent of the participants 31 years ago would have told you they were in the oil business – whereas the majority of those attending this week were there to talk gas, which is already attaining levels that would have left the class of ’81 gasping and, according to Deloitte, is heading towards income from LNG exports alone of $35 billion in 2017-18.

There is more to the gas boom than just the overseas markets, however. EnergyQuest chief executive Graeme Bethune has estimated that domestic gas sales on the east coast could total 21,000 petajoules over 20 years – they are running at 700PJ annually at present – and this could include 10,000PJ of sales to electricity generation, an area where gas has played a distant second fiddle to coal for decades.

Santos vice-president James Baulderstone told media at the APPEA forum this week that the conference, a renowned venue for deal-making over its 52 years, had for the first time thrown up major international companies wanting to invest in the domestic gas market. “They are happy to supply Sydney, Brisbane or Adelaide,” Baulderstone said.

APPEA conferences have two faces: the policy-related plenary sessions that attract all the media attention and the scores of technical and commercial papers delivered at concurrent sessions that are one of the event's biggest drawcards.

The association leaders may have collectively winced when star plenary speaker Ali Al-Naimi, the Saudi Arabian oil minister, quoted tennis great Rod Laver to remind them that players are at their most vulnerable when they think they are winning.

The APPEA executives know they are at the centre, to quote association chief executive David Byers, of a furious national policy debate over how the wealth they are generating is shared with the community, the impact of their operations on the natural environment and the very large ripples they are sending through Australia’s social and economic fabric.

All this has reached some sort of nadir in the coal seam gas rows in NSW and Queensland, with 4000 people marching against the industry in central Sydney early in May and 7000 turning out in regional Lismore last weekend.

Duncan Fraser, vice-president of the National Farmers’ Federation, told a packed plenary session focusing on the coal seam gas furore that the practices of “cowboy” individuals, companies and contractors had caused the conflict, especially in NSW. The situation, he said, had created “an unholy alliance” between farmers and radical environmentalists, “natural enemies”, that could only be resolved if the industry could deliver assurance that its operations will not affect water quantity and quality.

Byers later told delegates that, yes, the industry needed to communicate better in an environment where emotions can hold more sway than analysis, but this won’t resolve the issue. “What is required to earn the support of communities is ongoing demonstration of safe, responsible and sustainable operations by every individual and company in the industry.”

Meanwhile, the gas business is fighting on a different front against heavyweight opponents in the manufacturing sector who are going all out to push governments, especially in NSW and Queensland, but preferably nationally, to accept the need to reserve a share of gas for domestic use as a means of keeping down energy prices.

It is not only the petroleum people opposing this move. Ian Macfarlane took a strong stance when he spoke to delegates – and took a “respectful” swipe at Dow Chemical chief executive Andrew Liveris, who has been prominent in urging the policy. “In essence,” said Macfarlane, "this is asking one multinational (gas) to subsidise the profits of another multinational (gas consumers).”

He delighted his petroleum audience by warning of the “inherent dangers” of interfering in the gas market to mandate the reservation of gas, “not the least of which is the distortion of price signals and undercutting the competitiveness of gas projects".

Meanwhile his Coalition colleague, NSW energy minister Chris Hartcher, was on hand the day before to indicate that his government is still wrestling with how to encourage large-scale coal seam gas exploitation in the state while keeping the faith with the large number of manufacturers there who are in high dudgeon over energy input costs.

With major contracts for conventional gas piped to NSW from Victoria and South Australia expiring in 2014-16, the state is effectively uncontracted for 95 per cent of the gas needs of 1.1 million business and residential customers by 2017.

Hartcher concedes the state faces a serious energy shortage and that solving the problem through creating a new gas industry in NSW also requires him to demonstrate how water, the environment and farmland will be protected.

A large media pack turns up regularly at APPEA conferences and has done so for decades because they are not dull events. Adelaide 2012 has lived up to their expectations.

Keith Orchison, director of consultancy Coolibah Pty Ltd and editor of Powering Australia yearbook, was chief executive of two national energy associations from 1980 to 2003. He was made a Member of the Order of Australia for services to the energy industry in 2004.

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