Rising costs pose threat to gas projects

The rising cost of doing business in Australia could cost the economy more than $100 billion of new investment in liquefied natural gas projects, the oil and gas industry's peak body has warned.

Chief executive of the Australian Petroleum Production and Exploration Association David Byers said on Sunday that both sides of politics needed to address the industry's global cost-competitiveness, where the high dollar, green tape, labour and construction costs were all making Australia a less attractive destination than for projects in North America and East Africa.

"Our industry is today building almost $200 billion worth of projects in Australia, and in the days ahead, we will discuss the prospects of $100 billion more," Mr Byers said ahead of the annual APPEA conference in Brisbane.

"Australia's attractiveness as a place to invest is under enormous pressure, and unless we can work with the next Australian Parliament to rectify this, our next $100 billion worth of LNG projects may be built elsewhere."

But while Woodside Petroleum's original $45 billion-plus development plans for Browse were scrapped, the trajectory in oil and gas is one of growth, especially when contrasted with the sharp slowdown in mining investment in bulk commodities such as iron ore and coal.

Australia is expected to overtake Qatar as the world's biggest LNG exporter by 2030, with the increased gas output from the eastern seaboard expected to triple on the back of the new Gladstone sites.

But rising costs have contributed to the decreasing likelihood that Arrow Energy, owned by oil giants Royal Dutch Shell and PetroChina, will proceed with its plans to build a fourth LNG plant alongside the three $20 billion-plus projects already under way in the Gladstone harbour.

Shell signalled last month that it would look at possible mergers.

Origin Energy has emerged as the likeliest contender to secure Arrow Energy as a joint venture partner for the expansion of its $25 billion Australia Pacific LNG venture, in a sign that rising construction and production costs could accelerate the consolidation in Queensland LNG.

Origin chief executive Grant King said on Sunday that he was in talks with Arrow about the potential tie-up, but that they were not exclusive.

"I'm sure each of the projects, including APLNG, will say to Arrow, 'Here's what we can offer you'," he said.

However, manufacturers, who are already reeling from widespread job losses, are frustrated that Australia's gas boom is unlikely to replicate the manufacturing revolution in the US led by cheap shale gas, with Australian gas prices expected to continue to soar because most new gas production is slated for export markets such as Asia.

"It's not that long ago that the US was seen as a potential customer for Australian LNG, yet this notion has quickly evaporated amid a shale revolution that continues to lift the US economy," Mr Byers said.