By Andrew Hobbs, Group Editor
NEWS of a fall in global oil prices, and resultant falls in gas prices, have been the talk of the industry since members of OPEC chose to not cut oil production at its annual meeting in November.
That decision sparked a drop off in global oil prices, with Brent crude trading at below US$53 as Oil & Gas Australia went to press – leaving it at a five year low.
Speaking to the Middle East Economic Survey (MEES) in late December, Saudi Arabian oil minister Ali al Naimi said it was not in the interests of OPEC members to cut production, regardless of the oil price.
He added that Saudi Arabia and other Gulf oil producers would be able to withstand a long period of low crude prices, but the pain would be greater for regions where costs were higher.
“So sooner or later, however much they hold out, in the end, their financial affairs will limit their production,” he said.
The fall in oil prices is unlikely to have an impact on the development of the seven LNG projects under construction in Australia, Australian energy economics group EnergyQuest wrote in its latest EnergyQuarterly report.
But returns from the projects may be reduced – with lower oil and gas prices meaning that the higher costs which these projects endured during the period of construction may not be offset.
EnergyQuest chief executive Graeme Bethune said it was unlikely that any company which had sanctioned an LNG project had assumed constant oil prices of around $100 per barrel.
“However, we are already seeing capital spending being cut across the sector,” he said.
“Industry costs went up with the higher oil price and now need to fall with the oil price.”
The news comes at a time for consolidation of companies in the industry – a move which started with some US groups disposing of overseas assets – chief among them Apache.
That consolidation gathered pace at the end of the year, with Australian oil and gas juniors moving to combine their interests and larger groups considering asset sales.
At the same time, while Australian conventional gas production was lower, total gas and ethane production in the September quarter was a record 639.1 petajoules, up by 8.3 per cent compared to the third quarter of 2013.
Petroleum production was 6.1% higher, at 146.8 million barrels of oil equivalent, in the third quarter of 2014 than it was at the same time the previous year.
Exploration spending was also at a high earlier this year – reaching a record $1.4 billion in the June quarter, driven by work in South Australia, Western Australia and the Northern Territory, the EnergyQuest report said.
In short, then, demand for exploration and production services in Australia is unusually strong at a time when oil prices are down from their previous highs – meaning the capacity for developers to make a profit is reduced – leading them to look for new ways to either reduce their costs or share the burden.
Something, somewhere, has to give – be it reduced exploration, offloading projects or merging interests, any move taken by developers will lead to change within the industry in Australia. Welcome to 2015.