LEVELS of oil and gas investment in Australia could drop below $10 billion for the entire 2018 calendar year in the absence of new project sanctions, according to the latest report by industry analysts Energy Quest.

This compares to the $56.6 billion spent on the sector in 2014 – comprising 36 per cent of private new capital expenditure – itself down 5.1% on the record $59.7 billion spent in 2013, the March 2015 Energy Quarterly said.

At the same time, a total of $4.2 billion was spent on petroleum exploration in 2014 – also down 7.4% on the record previous year, although that figure too was a record high.

Gas reserve replacement – a comparison of how much is produced against how much is found – was disappointing over 2014, the report said, with a reserve replacement ratio of -4%.

But earlier exploration had paid off in production levels, with Australia’s 2014 LNG production reaching a record 24.7 million tonnes, while domestic gas production also increased 2 per cent to a record 1,134.5 petajoules (PJ).

Petroleum production was also higher, up 6% on the back of higher LNG production from Woodside’s North West Shelf and Pluto projects, more gas from BHP’s Macedon project and increased returns from the Surat and Bowen basins. Oil production from the Vincent, Pyrenees, Balnaves and Montara fields also contributed.

Report author Graeme Bethune put the level of petroleum produced at a record 544.7 million barrels of oil equivalent (MMboe).

“Overall, petroleum production reached record levels and spending on new LNG projects continued at elevated levels as new projects near completion,” he said.

However, the slump in the oil price had eclipsed much of the industry’s success in 2014, creating widespread uncertainty for the people who, he said, had worked so hard over the past five years to establish a new Australian LNG frontier.

“It is not only the oil price, however, that is creating challenges,” Dr Bethune said.

“Use of gas is facing challenges in many countries.

Dr Bethune said China was seen as the big opportunity for LNG, with high and ongoing levels of gas demand as the nation sought to reduce pollution.

“However, the iron laws of economics apply in China as they do everywhere else and higher Chinese gas prices are reducing growth in demand,” he said.

“We expect that demand in the Australia’s domestic gas market will actually fall, with the Australian Energy Market Operator suggesting higher prices will reduce east coast demand by around 200 PJ by 2020.”

“Unlike oil, gas has numerous substitutes, making demand extremely sensitive to price,” he said.