THE BIG ISSUES

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.

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.