Deloitte na­tional oil and gas leader Ber­nadette Cul­li­nane speaks about how com­pa­nies, re­searchers, and pol­icy mak­ers can work to­gether to de­liver the best out­comes amid Aus­tralia's en­ergy evo­lu­tion.

The Australian Energy Review - - FRONT PAGE -

Q. Aus­tralia will soon take the crown as the largest LNG ex­porter in the world. How can ex­porters and do­mes­tic con­sumers come to a res­o­lu­tion over the east coast gas cri­sis?

There are sev­eral pro­posed ‘so­lu­tions’ to the east coast gas cri­sis. Each one has costs and ben­e­fits. Rather than be ex­posed to of ex­port mar­kets, do­mes­tic gas cus­tomers are start­ing to be more proac­tive in se­cur­ing sup­ply. There needs to be a bet­ter way of trans­port­ing gas do­mes­ti­cally from re­gions of rel­a­tively abun­dant sup­ply to the other side of the coun­try.

We might see more ex­am­ples of rel­a­tively low cap­i­tal in­ten­sity float­ing stor­age gasi­fi­ca­tion units be­ing built in ar­eas of high de­mand. New gas pipe­lines, pro­cess­ing cen­tres and stor­age in­fra­struc­ture will help to re­duce short­age sce­nar­ios and hope­fully re­duce the like­li­hood of ad­verse sup­ply events and price shocks.

With gas trad­ing be­com­ing a lot more so­phis­ti­cated, we might also see Aus­tralian gas pro­duc­ers pro­cure cheaper gas over­seas and then re­sell to the do­mes­tic mar­ket. On the sup­ply-side, the Fed­eral Gov­ern­ment is do­ing var­i­ous things to en­cour­age greater off­shore ex­plo­ration which may help alleviate things in the longer term. There’s no sin­gle magic bul­let un­for­tu­nately; it needs all par­ties to come to­gether.

Q. How ef­fec­tive do you think the Gov­ern­ment’s Na­tional En­ergy Guar­an­tee will be in eas­ing prob­lems faced by the mar­ket?

While the Fed­eral Gov­ern­ment’s new en­ergy pol­icy, the Na­tional En­ergy Guar­an­tee (NEG), pur­ports to ad­dress some of the big chal­lenges fac­ing Aus­tralia’s en­ergy sec­tor, we await the de­tails. The ba­sic goals of the NEG – af­ford­able, re­li­able, com­pet­i­tive and se­cure en­ergy – are com­mend­able, but there’s cur­rently a lot of un­cer­tainty in the mar­ket about the ex­e­cu­tion. There’s a lot of con­cern about the NEG ef­fec­tively ‘gold-plat­ing’ the en­ergy sys­tem just as a few years ago with the Aus­tralian elec­tric­ity net­work. Man­u­fac­tur­ers, house­holds and in­dus­try are wor­ried the NEG will lead to higher en­ergy costs and less com­pe­ti­tion.

The chal­lenge will be get­ting the var­i­ous States and Ter­ri­to­ries on-board; both South Aus­tralia and ACT have op­posed the plan. NEG will be back on the ta­ble at the next Coun­cil of Aus­tralian Gov­ern­ments (COAG) meet­ing in April.

Q. On the back of last month’s AOG con­fer­ence, can you share some of the in­sights you gained while meet­ing with in­dus­try peers?

This year’s AOG 2018 was much more op­ti­mistic and for­ward look­ing than in re­cent years. There is a feel­ing the in­dus­try is turn­ing the cor­ner.

Con­fer­ence at­ten­dance and the num­ber of ex­hibitors were up, there were new top­ics on the agenda and there was an in­ter­na­tional buzz gen­er­ated by the large in­ter­na­tional del­e­ga­tions from Nor­way, Scot­land and Bel­gium.

AOG has al­ways been a con­fer­ence that brings to­gether op­er­a­tors, the sup­ply chain and ser­vices com­pa­nies. This year how­ever, there were more in­no­va­tors, start-ups and en­trepreneurs in at­ten­dance.

These com­pa­nies demon­strated a plethora of new tech­nolo­gies like au­to­ma­tion, ar­ti­fi­cial in­tel­li­gence, drones and vir­tual re­al­ity. Many of these small-medium sized busi­nesses had the op­por­tu­nity to in­ter­act with the op­er­a­tors to learn how to break into their large tar­get cus­tomers at the first-ever NERA SME Con­necter pro­gram, which was a great suc­cess.

In­dus­try col­lab­o­ra­tion was on the agenda ev­ery­where. Safer To­gether, the ini­tia­tive for safety col­lab­o­ra­tion, was launched for WA and North­ern Ter­ri­tory com­pa­nies. WA Pre­mier Mark Mc­gowan an­nounced the launch of the LNG Jobs Task­force and Chevron man­ag­ing di­rec­tor Nigel Hearne dis­cussed how the in­dus­try will col­lab­o­rate on main­te­nance plan­ning for turn­arounds and shut­downs.

Q. Re­cent stats from the ABS con­firm a slump in off­shore petroleum ex­plo­ration. Is this a big is­sue for the in­dus­try?

Ex­plo­ration is the lifeblood for any fi­nite re­sources sec­tor and Aus­tralia will be at a com­pet­i­tive dis­ad­van­tage if it un­der­in­vests in ex­plo­ration, par­tic­u­larly given re­ports of re­serve short­falls and ex­pec­ta­tions of strong Asian de­mand.

There’s a need for base­line pro­duc­tion growth and even in the world of US shale, in­ter­est in off­shore ex­plo­ration is pick­ing up again. The eco­nom­ics are more sup­port­ive than 12-18 months ago. The higher oil price is mak­ing the mar­ginal, riskier off­shore ex­plo­ration projects more at­trac­tive for com­pa­nies and they have the cash-flows to fund these types of pro­grams. Also there’s in­creased po­lit­i­cal will; State gov­ern­ments are more sup­port­ive – the Vic­to­rian Gov­ern­ment re­cently re­leased off­shore gas acreage as part of its broader gas pro­gram, aimed at get­ting a much clearer pic­ture of re­sources in the state.

We may see an area like the Bass Strait trans­form from be­ing an oil fo­cus to mostly a gas op­er­a­tion.

Q. How is the oil and gas sec­tor re­spond­ing to the new en­ergy economy and what chal­lenges does this bring?

The sec­tor is repo­si­tion­ing to cap­ture ben­e­fits of the new en­ergy economy which in­cludes re­new­ables, low car­bon en­ergy and bat­tery stor­age.

Many oil and gas com­pa­nies are trans­form­ing their busi­ness mod­els to fu­ture-proof them­selves given the high level of un­cer­tainty over the fu­ture en­ergy mix.

Many are ex­pand­ing their port­fo­lios to in­clude so­lar and wind as­sets and are be­com­ing en­ergy so­lu­tion providers.

The Euro­pean head­quar­tered su­per­ma­jors in­clud­ing Shell, Sta­toil, BP, ENI and To­tal are on the front foot when it comes to new en­ergy in­vest­ment while the North Amer­i­can oil ma­jors are still lean­ing on the tra­di­tional oil and gas model.

In Aus­tralia, the two lat­est en­trants to the large-scale so­lar sec­tor are joint ven­tures with global oil and gas ma­jors – an­other in­di­ca­tor point­ing to the emer­gence of up­stream en­ergy com­pa­nies into the lo­cal re­new­ables mar­ket. The lines be­tween oil and gas and en­ergy/ elec­tric­ity are be­com­ing in­creas­ingly blurred. There seems to be in­creased scope for col­lab­o­ra­tion and cross-in­dus­try learn­ing in the emerg­ing new en­ergy sec­tor. Ital­ian oil ma­jor ENI re­cently formed a so­lar joint-ven­ture with Carnegie Clean En­ergy, a lo­cal re­new­able en­ergy player. We are likely to see more ex­am­ples of this in the year ahead. Com­pa­nies are re­shap­ing their op­er­at­ing mod­els to be­come ‘en­ergy so­lu­tions providers’…ac­tive across the en­ergy value chain. This is a def­i­nite break from the past when the oil and gas com­pa­nies were more in­volved in the man­u­fac­tur­ing equip­ment side of the mar­ket. Strate­gies and mind­sets are chang­ing.

Q. What op­por­tu­ni­ties are you see­ing in the decom­mis­sion­ing space?

Aus­tralia has more than 100 off­shore plat­forms and sub­sea struc­tures (Wood Macken­zie, 2017), in some of the most pris­tine and unique marine en­vi­ron­ments on the planet. Decom­mis­sion­ing these as­sets will be com­plex, chal­leng­ing and costly. The cur­rent cost of decom­mis­sion­ing of Aus­tralia’s oil and gas in­fra­struc­ture is es­ti­mated at more than $US21 bil­lion over the next 50 years (Wood Macken­zie, 2016).

The best way to ad­dress the chal­lenges of decom­mis­sion­ing is by shar­ing the bur­den. Op­er­a­tors, State and Fed­eral gov­ern­ments, the sup­ply chain, reg­u­la­tors, fi­nanciers, en­vi­ron­men­tal­ists, re­searchers and oth­ers all need to work to­gether in col­lab­o­ra­tive and in­no­va­tive ways to re­duce the cost and risk of decom­mis­sion­ing and de­liver the best out­comes for Aus­tralia.

With so many off­shore decom­mis­sion­ing projects on the near to medium-term hori­zon, Aus­tralia has the po­ten­tial to be­come a leader in end of life-cy­cle as­set man­age­ment, build­ing on the ex­pe­ri­ence in the con­struc­tion, op­er­a­tions and main­te­nance of ma­jor cap­i­tal projects. As an in­dus­try we need to plan for this even­tu­al­ity now or skillsets and tech­niques may need to be im­ported.

Q. What does the work­force of the fu­ture look like in the oil and gas space?

The sec­tor is in­creas­ingly a world of drones, IOT, an­a­lyt­ics, ro­bot­ics, AI and ma­chine learn­ing as com­pa­nies seek to achieve a step change in pro­duc­tiv­ity lev­els, gain much greater un­der­stand­ing of their op­er­a­tions and take per­for­mance to the next level. It’s en­tirely pos­si­ble we will soon see a fully au­to­mated off­shore oil and gas plat­form with ro­bots per­form­ing all the field op­er­a­tions and a highly skilled hu­man task­force pulling all the strings on­shore.

With dig­i­tal ex­tend­ing its reach, data sci­en­tists, com­puter tech­ni­cians and soft­ware en­gi­neers will be­come the em­ploy­ees of the fu­ture, lever­ag­ing the power of tech­nol­ogy to un­cover new re­serves, ex­ploit new oil and gas basins and har­ness the po­ten­tial of al­ter­na­tive en­ergy.

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