Ensuring ongoing energy security from the Gippsland Basin

David Berman, ExxonMobil Australia Commercial Director, speaks at the 2024 Australia Domestic Gas Outlook Conference in Sydney

Ensuring ongoing energy security from the Gippsland Basin

Australian Domestic Gas Outlook Conference 2024

Sydney, Tuesday 26 March 2024

Slides to this speech can be found here.

On behalf of ExxonMobil Australia, thank you for the opportunity to speak with you today.

Conferences like ADGO are important because we need talk about what it means to take responsibility for our own energy security.

ExxonMobil has operated in Australia since 1895, has invested $41 billion in Australia and for over 50 years has supplied 100% of ExxonMobil’s east coast gas production exclusively to the domestic market.

Since Esso and BHP drilled Australia’s first offshore well in 1965, the engineers and geoscientists of ExxonMobil have built a legacy in the Gippsland Basin based on the best people, the best technology and above all doing what’s right to produce more than 5 billion barrels of liquids and 11 trillion cubic feet of natural gas.

The contribution of the joint venture to the development of Australia and the welfare of Australians is extraordinary, supplying 17% of all the natural gas ever consumed in Australia.

Australia could not have a better steward of this resource.

We recognise our important role supplying the energy Australians depend on, and so in the same way we have done in previous years, today I will share our east coast gas production outlook.

We’re increasingly confident what the path to the end of gas production in the Gippsland Basin might look like.

The outlook you will see today is similar to what we have shared before.

We expect to continue to supply gas from the Gippsland Basin into the next decade, but it is important to be aware of several key factors that will come into play as production declines.

This includes investment decisions that are yet to be made, which can materially change both the date on which production will end and how much gas is produced between now and the end of production.

Delivering reliable domestic gas

The Gippsland Basin and Kipper Unit Joint Ventures supplied almost 60%  of the gas consumed in southern states during 2023.

Because gas production is a depletion business, new investments are continuously required to ensure the market remains well supplied. These are large, complex developments which require long-term planning and a stable investment climate.

It’s because ExxonMobil and our joint venture partners have invested $7 billion over the past 15 years to develop new domestic gas that the Gippsland Basin and Kipper Unit Joint Ventures remain today the largest supplier of gas to the east coast domestic market even after more than 50 years of production.

In the first quarter of 2022, we announced full funding of the Kipper Compression Project, shown on this chart in blue. As you can see on the upper right side of the chart, West Barracouta, which started production in 2021, and Kipper Compression will each supply more gas to the domestic market this decade than Narrabri and Beetaloo combined if developed.

On the left side of this chart you will notice almost 50% of the production anticipated from the Gippsland Basin and Kipper Unit Joint Ventures in 2027 is not online today, and this increases to almost 70% by 2028.

This means construction of sanctioned developments and decisions to invest, or not invest, in new gas supply by the Gippsland Basin and Kipper Unit Joint Ventures will materially impact the supply outlook for the southern states in the second half of this decade.

The undeveloped resource shown on this chart includes well defined, currently unsanctioned developments that can also produce more gas this decade than either Narrabri or Beetaloo if developed.

There is more to these developments than just the quantity of gas they supply. Equally important is daily capacity provided to the market, which will be increasingly important in southern states in the second half of this decade.

In the lower right of this chart, you can see by 2027, recent developments, the developments currently in construction and the developments waiting on an investment decision all exceed the incremental gas capacity that can be delivered to the southern states by the stage 1, 2 and the recently proposed stages 3 and 4 South West Queensland Pipeline expansions. With the most material contribution to daily capacity in 2027 that could be made available to the market remaining unsanctioned.

In December 2022, the Gippsland Basin Joint Venture, like other producers, paused investment in new gas supply.

The changes during 2023 to the policy announced in December 2022 have restored the minimum policy stability required to allow work to restart on new gas supply developments.

Of course, the final investment decisions that are key to 2027 supply security remain subject to all normal qualifications including shareholder and joint venture approvals.

2027 is only 1000 days away.

Just last week the Australian Energy Market Operator confirmed Victoria’s production outlook for the period through to 2026 has deteriorated compared to the outlook last year and that many of the potential projects identified in the 2023 VGPR have not materially progressed over the past year due to regulatory approval requirements and the uncertain investment environment.

And so there is an urgent need for investment in new domestic gas supply and infrastructure to provide energy security and affordability for households and businesses.

Without investment, ExxonMobil Australia estimates by 2030 domestic gas supply available to southern states will decrease by 44%, more than four times the most credible forecast reduction in southern state gas consumption of 10%.

An evolving outlook for the remainder of this decade

This chart shows estimated production capacity for the period 2024 through 2030 as submitted by the Operator of the Gippsland Basin and Kipper Unit Joint Ventures for each of the four most recent Gas Statement of Opportunities reports.

Total forecast gas supply to the market from this year to 2030 increased by 27% in the 2022 report compared to the 2021 report and increased again in the 2023 report by another 15% compared to the 2022 report.

In other words, between 2021 and 2023 estimated gas supply through to 2030, from the domestic market’s largest supplier, increased by more than 40%, deferring southern state supply shortfalls that had been forecast for the middle of the decade.

This is one more important example of how ExxonMobil and our joint venture partners have done the heavy lifting to both ensure reliable supply and apply downward pressure on price for Australian households and industry.

In contrast, this year’s report shows no growth compared to the year before, and the reason is related to something I talked about at this conference last year.

Although the Gippsland Basin and Kipper Unit Joint Ventures are and will remain through this decade the largest supplier of gas to the east coast domestic market, as offshore capacity declines, the production system will and must operate differently. This means its role in the system and market will change.

In 2010, the Gippsland Basin Joint Venture produced from 122 wells to 8 platforms supplying 3 onshore gas plants. That meant if an offshore platform was for some reason unavailable, another offshore platform could step into its place, production from Longford would remain unaffected and customers would continue to receive the gas they expected.

At this conference last year, we had 68 wells producing gas, today that is down to 50 wells.

By winter next year we expect to have 70% fewer gas producing wells than we had in 2010.

Clearly the addition of new and reliable well stock to the production system will be a significant benefit if in the future the joint venture decides to invest in new gas supply.

As more legacy fields end production, we will continue to match onshore capacity with reduced offshore capacity, both to produce gas at a competitive cost but also to maintain reliability of gas production for our customers.

By the end of this year, we will have invested around 350 million dollars since 2021 to reconfigure Gippsland Basin Joint Venture facilities to produce safely and reliably into the next decade.

And as we step down from three to two gas plants in 2024 and ultimately later in the decade to one gas plant at Longford, reduced onshore processing capacity means growth of gas production forecasts like what we saw in 2021 and 2022 is less likely.

These changes have important implications.

For Australians on the east coast, ExxonMobil will remain a reliable supplier of gas to our customers, however the decrease in available Gippsland Basin Joint Venture production means the joint venture’s capacity to respond to disruptions that go beyond the needs of our customers to maintain the reliability, resilience, and stability of the system will be reduced.

I have attended and spoken at this conference for the past 4 years. At every one of those conferences, regardless of whether gas prices have been low or high, declining or increasing, I have talked about how a stable and secure policy environment is essential to securing the capital required to invest in new gas supply.

But deploying that capital requires an efficient regulatory regime and the ACCC is right to highlight the long list of reasons that are either preventing or delaying responsible development of new gas supply. In the United States it takes one month or less to apply for and receive an onshore drilling permit, and less than 2 months to apply for and receive an offshore drilling permit. In Australia it can take up to 2 years for both.

ExxonMobil supports careful and diligent regulation both because it is the right thing to do, and it is in ExxonMobil’s interest for all of industry to be held to the high standards we hold ourselves to.

However, achieving sustainably lower domestic gas prices requires significantly shorter regulatory timelines because one third of the gas that will be required by consumers on the east coast between 2025 and 2030 is not on production today.

Regulatory efficiency and effectiveness are not trade-offs; Australia can and should have both.

It’s encouraging to see the Federal Government take steps to address this issue. We support the government’s approach to clarify consultation requirements for offshore oil and gas development and it’s encouraging to see legislation now before the Parliament that will help reduce regulatory approval timelines and ensure appropriate stakeholder consultation.

And when it comes to investment in new supply, the inevitable reality of a depletion business means producer and consumer interests are the same.

For producers, a lack of new supply means less gas will be available to sell and over time the decline of the producer’s business.

For consumers, a lack of new supply means less gas will be available to buy and prices will rise.

Leaving Australian gas in the ground does nothing to help ensure supply will be sufficient to meet demand, put downward pressure on prices or secure the economic and emissions reduction benefits of natural gas.

Securing these benefits for Australians does not require a complex policy response nor taxpayer funded subsidies, it does require timely regulatory approvals and policy stability.

Southern state supply will be insufficient to meet demand

Of course, there are different views on how best to provide reliable domestic supply for Australian households and businesses and apply sustainable downward pressure on domestic prices.

One popular idea is to redirect existing production away from export markets and toward domestic markets to ensure supply and achieve some notional price target.

The superficial appeal of this approach is easy to appreciate however exporting less gas is neither an effective or sustainable solution.

ExxonMobil does not export any of the gas it produces in eastern Australia, and so does not have a direct interest in how much gas is or is not exported from Queensland.

However, as the operator of Australia’s largest domestic gas supply project we do have an interest in an efficient and effective domestic gas market.

So it’s with that perspective I can say the challenges we have in the east coast energy market are not because there is an LNG export industry in Queensland but because as a country we have not provided the conditions necessary for sufficient investment in supply and infrastructure to ensure our own domestic energy security.

It is true that 90% of proved and probable gas reserves on the east coast of Australia are located onshore in Queensland and the Northern Territory. It is also true that production capacity in Queensland exceeds peak winter domestic demand by a factor of two and a half and that in any given year around 90% of the gas produced in Queensland is exported or consumed in export-related activities.

However, it is also true that in any year two thirds to three quarters of domestic gas demand is in southern states and for decades, production in these states, close to where it was consumed, was more than sufficient to meet demand.

When we look ahead to 2028, 85% of peak domestic consumption will be in southern states. That will be more than 3 times greater than peak production capacity available in southern states in 2028.

When I was a kid, mum & dad would drive the family from Melbourne to Queensland for holidays, over two full days you realise it’s a long way from Melbourne to Queensland and it feels even further on the way back to Melbourne.

Well of course that’s the same distance gas needs to be transported from where it is produced in Queensland to where it is consumed in southern states and the available pipeline capacity means less than 20% of southern state peak winter daily demand can be supplied from Queensland. This is a physical constraint, not a choice and certainly not something that can be changed at short notice by government intervention.

Between 2019 and 2022 gas from Queensland accounted for less than 7% of gas consumed in southern states. And even if future available and planned pipeline capacity was fully utilized every day of the year, production from Queensland could still only supply around 30% of southern state demand in an average year. This is a significant overestimate because while the pipeline infrastructure which connects Queensland to the southern states already largely operates at full capacity moving gas south during winter consumers do not want or need that volume of gas outside the winter peak.

So when pipeline capacity from Queensland to the southern states is largely full, as it is during winter, it will make little to no difference to the outcomes consumers experience in southern states whether Queensland gas is exported to international markets, because even if the gas is not exported from Queensland there is no way to get all the gas that will be required later this decade from Queensland to Melbourne or Sydney.

It has been encouraging to see some governments and regulators begin to acknowledge the only sustainable way to both ensure reliable supply and apply downward pressure on price, particularly in southern states, is to develop new sources of gas supply close to where consumers need it along with investments in transportation and storage.

This is what taking responsibility for our own domestic energy security looks like.

Delivering reliable domestic gas and reducing emissions

Today, society has two essential asks of our industry, reliably supply affordable energy and reduce greenhouse gas emissions. ExxonMobil is delivering both.

Renewable energy is essential for the world to achieve net zero, but it will not be sufficient because wind and solar alone can’t solve emissions in the industrial sectors that are at the heart of a modern society.

Industrial activity, power generation, and commercial transportation together account for 80% of all energy-related greenhouse gas emissions. So we need to find solutions for these hard-to-decarbonize sectors to reach net zero and here in Australia to achieve the Federal Government’s emissions reduction targets for safeguard mechanism facilities.

Collaboration will be key, and that is why ExxonMobil is evaluating the potential of the South-East Australia Carbon Capture and Storage Project in the Gippsland Basin to reduce the greenhouse gas intensity of hard-to-decarbonize sectors such as manufacturing and heavy industry.

In addition to permanent sequestration of carbon dioxide we have entered into two long-term agreements that will see the Gippsland Basin Joint Venture capture and supply carbon dioxide to Air Liquide and BOC for processing at Longford and use in food and beverage products, water treatment, desalination, manufacturing, and medical industries.

Both projects are expected to start-up later this year, reducing emissions, strengthening local supply chains and creating jobs, all without government assistance.

Since 2018 ExxonMobil has reduced flaring by 46% and the use of gas as fuel by 28% across our Victorian operations. The gas we’re now saving at Longford is enough to supply gas to almost 100,000 households every year.

Along with other changes to the way we operate these steps have allowed us to reduce the greenhouse gas emissions by 29% since 2018.

Climate change is a global problem. That’s why it will mean little if Australia achieves emissions reductions objectives at home but countries in our region do not.

Earlier I talked about why exporting less gas is not an effective or sustainable solution to our domestic energy challenges in Australia. Exporting less gas is also not the right thing to do if we are sincere in our efforts to address global climate change.

That is because the Asia Pacific is home to over half of the world’s population, will maintain around half of global primary energy demand and will produce around half of global carbon emissions until 2050. The Asia Pacific region consumes 38% of global oil production, 24% of global gas production and 81% of global coal production every year but it doesn’t produce enough of any of these commodities to meet its needs.

And so, if our region is to reduce its emissions then Australia must supply the energy, including gas, and low emissions solutions our region needs.

The Chevron operated Gorgon Joint Venture in Western Australia is a great example of how Australia can supply the needs of both domestic and regional customers.

ExxonMobil is a partner in the Gorgon joint venture and our domestic gas obligation is one part of a 2003 agreement between the joint venture and the State of Western Australia.

Under that agreement the joint venture made commitments to the State and the State made commitments to the joint venture, those mutual commitments secured the basis for investment in the Gorgon project.

ExxonMobil is delivering in full on all our commitments, including our domestic supply commitments, significantly increasing gas supply to the Western Australian domestic market in 2022 and maintaining that supply since.

Investing in Australia

ExxonMobil has invested in Australia and Australians for over 125 years and our message to this conference has not changed in over a decade.

Because gas production is a depletion business, taking responsibility for our own energy security means providing the regulatory, fiscal and policy stability required for ongoing, efficient, long-term investment in gas supply and infrastructure.

That’s what will ensure Australian households and businesses can access the gas they need, put sustainable downward pressure on prices, and reduce Australia’s emissions.