News

Gas demand puts Australia in box seat despite labour costs

Santos CEO David Knox says Australia is an "extraordinarily expensive place to do business".
Santos CEO David Knox says Australia is an "extraordinarily expensive place to do business".

AUSTRALIA'S gas reserves are abundant but expensive to develop, Santos CEO and managing director David Knox has told a conference in Sydney.

Speaking at the Australian Institute of Energy Conference, Mr Knox said the challenge was to be competitive.

"Recent studies show that Australia is the most expensive offshore E&P (exploration and production) location in the world today, three times as expensive as the US Gulf Coast and slightly more expensive than Norway," he said.

Mr Knox said Australian projects were getting more expensive.

"The Australian LNG projects currently under construction are now 80% more capital intensive than those already in operation," he said.

At Santos' GLNG project in Gladstone, labour costs make up 50-60% of total project costs.

"As individuals and organisations, and even governments, we need to be more productive, we need to continue to learn, apply ourselves better, and we need to be more disciplined and get value for our money," Mr Knox said.

"We shouldn't increase the reward for doing the same thing, but instead we should strive for and incentivise investment and innovation."

In an interview with Business Spectator on Wednesday, Mr Knox said the cost of an hour's labour in Gladstone "right now is, let's say, $100 an hour. That same hour's labour in North America and the Gulf of Mexico is about $50 an hour".

"So we're about twice as expensive as the average labour cost in the Gulf of Mexico.

"When you look globally at the cost spaces, if you want to build a platform or a small platform in the Gulf of Mexico, let's say it costs $100 just to use a number, in Australia that same platform would cost $330.

"So, it's an extraordinarily expensive place to do business. We need to build the scale. We really need to bring in the skills.

"We need to innovate. And we need to drive those costs down. Otherwise, we're not going to be competitive and we'd love to be competitive."

Read the full interview here

Mr Knox says Australia is in an excellent position because demand for gas is expected to climb.

The rising cost of oil and the growing needs of Asia will influence that demand.

"Australia's future is very much linked to the pace and scale of economic and societal change taking place in the Asian region - a region which provides us with a large and growing market for our resources," he said.

"Growth rates in Asia are being matched with a similarly fast-growing energy demand.

"This growth in energy is borne by the growth in living standards Asia is experiencing today, by millions of people across the region seeking a better way of life.

"Asia's transformation and its energy challenges are resulting in global projections for gas demand skyrocketing.

"The demand for gas is expected to grow by more than 50%, faster than any other fossil fuel in the 25 years to 2035."

Based on projected demand, Australia has more than 50 years of known gas reserves to support domestic and export markets.

However, east coast gas prices are expected to double over the next three to four years as Queensland's coal seam gas to LNG projects come online and the local market approaches ''export parity''.

Central Queensland University Professor in Regional Development Economics, John Rolfe, says at the moment domestic gas prices on the eastern sea board are lower than world prices.

"But when we get the new LNG plants built in Gladstone, they'll start exporting from about 2014.

"Then suddenly those domestic prices will start to even up with the overseas prices, so we expect the domestic prices to increase," Prof Rolfe told the ABC.

"Now some industries are calling for domestic gas to be reserved to artificially hold domestic prices down. I agree with David Knox that that's a mistake. I think it's better just to let the market forces operate." 

Mr Knox has warned that a domestic gas reservation policy would be ''simply counterproductive''.

"A gas reservation policy will create market distortions, inefficiencies and would lead to a shortage of gas in Australia, and ultimately higher prices than otherwise," he said.

"It would also create further uncertainty for gas companies, their investors and lower confidence in Australia as a supplier of gas to the region.''

Topics:  business gas glng lng mining industry santos



How to survive a bushfire in your car

IT SOUNDS like a nightmare, but it can happen.

Eight reasons to join the RFS

SPREAD across 93% of Queensland, the Rural Fire Service has about 36,000 volunteers. And you could be one of them.

What if my insurer gives me grief?

CLAIMING your insurance cover after a natural disaster can go one of two ways. It can be a breeze, or like pulling teeth.

Bank reclaims Goondoon St complex plan, places on the market

Multi-million dollar development plan up for sale.

MULTI-MILLION dollar plan for Goondoon St complex on the market.

Gladstone FIFO worker's 'tough' first Christmas away

Gerimie, 12, Lory and Makaila Fajardo, 7, enjoyed the party.

FIFO worker to miss first Christmas with young family.

'Very poor': Pollution hits peak in Gladstone

POLLUTION levels spring well above what the Government deems safe.

Local Partners

Kiwi's plea to Ellen DeGeneres to save bakery after quake

Ellen... we need your magic.

Family had to be helicoptered out after powerful quake

Seacrest: Things are "going better" for Kim and Kanye

Ryan Seacrest says things are "going better now" for Kanye West

Jonah Hill involved in a car accident

Jonah Hill was involved in a car crash on Saturday

Katie Holmes' empowering directorial debut

Katie Holmes

KATIE Holmes as made her directorial debut

Jennifer Lawrence gives keys to new partner

Oscar winner Jennifer Lawrence

Oscar winner settling down with new partner

Rogue One star proud to lead new Star Wars film

Felicity Jones leads the new Star Wars film

Star Wars lead proud to be in front in sci-fi

Seven Gladstone homes selling right now leave experts shocked

PROPERTY GURUS pick seven properties that show market has hit bottom

The million dollar property to test Mackay's market

This Victoria St building will go to auction Tuesday and investors will be watching closely to see how much it sells for.

'High profile architect designed CBD asset' goes to auction

Banks reclaim Gladstone homes as job losses bite

LONG FALL: Property experts Heron Todd say, based on key market indicators, Gladstone is still travelling to the bottom of the market, with property prices set to get cheaper.

Property valuers say Gladstone housing market hasn't hit the bottom

Prices jump in trio of mining towns

THE boost in coal prices in the past six months has triggered a house price jump in at least three mining towns in Central Queensland.

Boost in coal prices triggers a market turnaround

INSIDE STORY: Disused pipeline stops hundreds from building

TRAIL OF TEARS: Route of the disused Santos oil pipeline which is stopping hundreds of Ipswich residents from building.

Santos responds but Tully says easements issue must be addressed

Ready to SELL your property?

Post Your Ad Here!