~ Check against delivery ~
Good morning. It’s a pleasure to have the opportunity this early on in my role as the new Chairman of ExxonMobil Australia to take part in not just the broader APPEA event this week, but in particular, a discussion on this topic.
“Staying the course” is a fitting choice of words for a discussion about the East Australia gas market and one that feels particularly appropriate given the role that ExxonMobil has and continues to play.
Since the 1960’s, ExxonMobil, has played a leading role in the exploration, development, production and supply of natural gas to the East Australia market.
In fact, this year marks the 50th anniversary of the first production from our Gippsland Basin Joint Venture with BHP. We are proud to have operated fields and infrastructure which have produced approximately 8 trillion cubic feet of natural gas and for over half a century, since first gas flowed from our Barracouta platform in the Bass Strait, we’ve been one of the largest suppliers of gas to the market.
Today, production from the Gippsland Basin continues to meet around 40% of East Australia’s domestic gas demand.
But many of these fields are now approaching the end of their life. Although the Gippsland Basin has been a prolific source of both oil and gas, after 50 years, the fields are in decline.
At the same time, demand for natural gas continues to grow substantially in Australia and around the world as a key part of a cleaner energy future.
This is creating a challenging time for industry. One where we are seeing supply tighten with flow on effects for gas prices.
While the East Australia gas market is no doubt in the midst of a huge transition, at ExxonMobil, we anticipate this to now be a time of opportunity.
We are already seeing new development and innovation, as the market responds to the demand for more competitively priced gas. This has included gas exploration, new developments and five potential LNG import projects.
Gas prices have risen from a level where they were underpinned by oil production, to a level where they need to support investment on their own.
We are seeing leading energy companies from Australia and the rest of the world competing to bring new supply into the East Coast gas market.
At the same time, the increase in global LNG trade has also changed the landscape for natural gas markets around the world.
Not only connecting new supplies to previously unreachable markets, but also connecting historically isolated gas markets around the world with one another, creating greater inter-linkage between global supply and demand, as well as pricing.
With growing demand for natural gas and an ever increasing decline of existing local conventional supplies, there is a lot of discussion of what the market needs.
These discussions are often aimed at the need for new policy or market intervention of some sort.
While there are many pros and cons to that debate, there is a more straightforward point of view.
The East Australia gas market needs investment.
This is not a small matter as the magnitude of this investment will be significant and wide ranging.
These investments will require a stable and pragmatic approach to regulation – one that considers the time horizons over which oil and gas investments must be evaluated.
And one that also recognizes the range of other investment opportunities open to many oil and gas companies around the world. Australia must compete to secure its share of investment in what is currently a booming oil and gas landscape globally.
We look forward to the establishment of a comprehensive and stable long term energy policy in Australia. One which promotes investment and free market principles to drive supply and demand.
Investments will also need to be underpinned by a constructive and transparent dialog between all stakeholders spanning offshore regulatory frameworks to the role of gas in a lower carbon energy mix.
We must all work together to develop efficient gas value chains that meet the needs of the East Australian gas market into the future.
But fundamentally, the market requires investment.
I’d now like to take some time to share with you how ExxonMobil continues to be at the forefront of making those investments needed to meet the supply needs of this market.
At ExxonMobil, we are focusing on three different approaches to help bring more gas to market.
- Firstly, through the continued development and optimization of our existing Gippsland Basin acreage and assets.
- Secondly, through exploration drilling in the pursuit of new supplies, and,
- Thirdly, through a potential LNG import terminal in Victoria.
Let’s start with the continued development and optimisation of the Gippsland Basin with our partners BHP and Mitsui.
We have seen the fields, which drove the development of the gas market 50 years ago, mature and decline. These fields were world class, with high pressures and limited impurities requiring little to no compression and an extremely limited amount of processing beyond liquids removal.
In the last decade our focus has switched towards beginning to develop the next generation of gas supply. A generation that is extremely different than the one before it.
In 2017, we completed the largest single investment in Australia’s domestic gas market with the five and a half billion dollar Kipper Tuna Turrum Project. Indicative of this generation of gas, this type of development is vastly more expensive to develop than in the past. For example, more than one billion dollars of this investment was to build the Longford Gas Conditioning Plant and other facilities to remove impurities.
Earlier this year, ExxonMobil and BHP also announced a final investment decision to develop the West Barracouta gas field in Bass Strait. This project, with costs of around four hundred million dollars, is expected to start producing in 2021.
We are not finished. Our highly skilled and experienced organisation, remains focused on evaluating other gas opportunities, leveraging our global expertise to come up with new development concepts to bring more volumes on stream.
These opportunities were not economic at historic prices, or using traditional technology.
But higher gas prices today, as well as technological innovations make the previously infeasible, feasible.
Let’s now move to our second approach for new supply. Exploration.
In 2017, we acquired 100% of an exploration block in the Gippsland Basin called VIC/P70. It is a large block covering over two hundred thousand hectares. To give you some context, that’s approximately half the size of the existing Gippsland Basin Joint Venture acreage.
We are using advanced technology to ensure the full potential of the block can be understood and realised. New seismic reprocessing technology, including proprietary algorithms, has enabled us to identify some interesting new concepts and leads in the acreage.
In 2018, we invested one hundred and twenty million dollars to drill two deep-water exploration wells in VIC/P70 and were hopeful of making a significant gas discovery.
Unfortunately neither of these wells found commercial quantities of gas.
Obviously, this was a huge disappointment for us. I think it’s fair to say it was also a big disappointment for the industry and the market as well.
However, the wells have provided valuable information that will assist our ongoing exploration efforts. We continue to try and better understand the potential for high quality gas prospects in the area and have a number of other leads that merit further investigation.
Let’s now move to the topic of LNG imports.
We are continuing to study and progress the import of LNG into Victoria, leveraging our global project execution capabilities in this area, as well as our global LNG supply and trading expertise.
We believe that LNG imports could be complementary to both the further development of our Gippsland assets and any potential new supply from yet to be discovered resources in our VIC/P70 license.
That said, LNG and conventional gas development projects remain highly capital intensive.
As we seek to invest in additional supply, we will take on significant upstream risk. Like that of unsuccessful exploration wells.
We will therefore require strong signals of commitment from customers that they need this gas. Signals that include a willingness to commit to longer-term offtake agreements.
Securing creditworthy offtake agreements to underpin final investment decisions for new projects will not be easy given the price environment.
But, without these new investments, we risk setting the stage for a supply-constrained market in the future.
So, in conclusion, ExxonMobil has made a significant contribution to this market over the past 50 years.
Today, we are working to ensure we meet the needs of our customers by looking beyond our areas of traditional participation and striving to be innovative.
We are focused on the development of a diverse gas portfolio, including existing and new Gippsland Basin Joint Venture developments, further exploration, and potential LNG imports.
We value highly our well established and strong relationships with communities, our customers, industry partners and governments.
ExxonMobil looks forward to meeting the future needs of the East Australia gas market by supplying affordable and reliable gas to the market and safely fueling a cleaner, more prosperous future for Australia.