COMPANIES working in the oil and gas sector will need to find new ways of boosting productivity as levels of oil and gas investment in Australia continue to fall from their peak in the last quarter of 2013, industry analyst Graeme Bethune says.

In the August quarterly report released by energy economics group EnergyQuest, Dr Bethune said increased labour productivity and new oil and gas discoveries would be important to help turn around this investment slide.

“Australia has plenty of gas but the highest quality fields are already under development. The best fields always get developed first,” he said.

“Australia needs to reduce the cost of developing remaining lower-quality fields while going all out to make new discoveries.”

That said, there were few signs of moderating labour costs – with wage costs rising 2.9 per cent in the June quarter, well ahead of the national wage growth rate of 2.6%.

Spending on exploration was also up at historic highs of around $4 billion per year, he said, with solid discoveries made in the Carnarvon basin, Browse basin and Canning basin.

But the issue of declining resource quality, and the increased development costs which it entails, had not had much attention, the report said.

“This is apparent in the Queensland LNG projects as they step outside the sweet spots and need to drill more wells to produce the same volume of gas,” the report said.

“Another example is the Bonaparte LNG project, recently put on hold by GDF Suez and Santos. Notwithstanding the fact that this was proposed as an FLNG project, with limited exposure to Australian costs, it is still uneconomic because of the low quality of the Petrel, Tern and Frigate fields.”

“There are two conclusions here. One is the continuing need for exploration to find high quality resources. The other is the need to drive down controllable costs (development, regulation and fiscal terms) to make poorer quality resources economic.”

The cooling economy should start to take some of the pressure off costs, he wrote, with recent data from the Australian Bureau of Statistics showing growth in wages in the mining sector (including oil and gas) and electricity and gas had levelled out after outpacing wages nationally.

“Relative professional services wage rates are moderating significantly. This is consistent with the significant fall in new work being won by engineering and construction contractors,” the report added.

Some oil and gas majors were also calling for changes to industrial relations practices, including unproductive clauses in enterprise agreements, to reduce costs.

At the same time, liquefied natural gas has replaced education as Australia’s third largest export after iron ore and coal, with the value of LNG exports at $16.5 billion in 2013-2014.

Dr Bethune said Australia could expect to see LNG exports top out at $19 billion in 2014-2015.

“When all projects are in production, total LNG exports could reach over $50 billion, assuming current prices,” Dr Bethune said.

Domestic gas production in Australia reached a record 1,136 petajoules (PJ) in 2013-2014, a 2.7% increase year on year, while Australian oil production increased by 4.4% in 2013-2014 to reach 80.4 million barrels.