Australian oil industry seeks reforms to boost output

Adelaide, Australia (Platts)--16Apr2007

The Australian Petroleum Production and Exploration Association has
called for the implementation of six key policy changes that it hopes will
address the nation's declining oil production and boost domestic use of its
massive gas resources.

The initiatives would give the Australian upstream oil and gas industry
the best chance of achieving its targets over the next ten years, APPEA Chief
Executive Belinda Robinson said on the eve of the industry association's
annual conference in Adelaide.

The Australian industry is planning to maintain its liquids production at
the 2006 level of 57% of consumption over the coming decade. It is also hoping
to boost LNG production from 20 million mt in 2008 to at least 50 million mt
in 2017.

APPEA has also outlined plans to double natural gas use by domestic
industries over the next ten years and is targeting 70% of all new electricity
capacity to be gas-fired over the same period.

"We must put in place a strategic plan that ensures the nation's oil and
gas industry meets the challenges so that all Australians can reap the
rewards," Robinson said.

Among the key areas for policy action is a proposal for a five-year
depreciation regime for large gas projects.

"This is one of the keys to unlocking the industry's vast potential,"
said APPEA Chairman Colin Beckett.

"Without tax reform--including the introduction of a competitive
five-year capital depreciation period for large gas projects--Australia will
struggle to compete against Middle East suppliers with lower costs to build
the LNG plants that will offset the country's massive and growing trade
deficit in petroleum products," he added.

The initiative, for an average two-train LNG project, would result in a
deferral of taxation revenue of A$500 million ($417 million) but would return
A$4.5 billion in royalties and taxes to the Australian public over the life of
the project, Beckett said.

"The fact is, despite all the optimism, Australia still has only one LNG
project in Western Australia and one in the Northern Territory, and only when
the economics make sense will the remaining large projects go ahead," said
Beckett, who is also the general manager of the Chevron-led Gorgon gas project
off Western Australia.

Robinson said that by quadrupling its LNG production, Australia would not
only become the world's third largest producer, it would make a substantial
contribution to reducing greenhouse gas emissions.

Australia could prevent 180 million mt of greenhouse gas emissions in the
Asia Pacific region, including 30 million mt/year in Australia by 2017, if the
industry's targets are met, she added.

"But this won't happen on its own," Robinson said. "In addition to
industry taking proactive action on a number of fronts, Australia needs policy
settings that get LNG projects over the line and enable natural gas to compete
with other fuel sources on a level playing field."

The other five key policy initiatives APPEA wants to see implemented are
the development of a more flexible exploration licensing system to accommodate
the uncertainties associated with uncharted geological provinces; the
introduction of a 175% investment allowance under the company tax regime to
encourage explorers into new areas such as the Great Australian Bight; a
review of regulation across all Australia's jurisdictions as a step towards
establishing a national regulatory regime for the oil and gas industry; reform
of energy taxation to remove subsidy-related distortions such as the
advantages enjoyed by coal; and, subject to certain conditions being met, a
carbon pricing mechanism.