Lynn spoke of an “absolute crisis in confidence” in doing business in Australia in the oil and gas space because not only have the goalposts changed since the wave of LNG megaprojects rolling off the production line had their final investment decisions, but the interpretation of rules shifts as state and federal governments change.
“There is an increased assessment of risk in doing business in Australia because of the complexity of dealing with three levels of government – federal, state and local,” he said regarding the issue, which is particularly pertinent to WA.
“While that’s the same everywhere, you have to deal with six different departments that don’t talk to each other within the state [and federal levels], so the regulatory environment means you have to produce document upon document upon document.”
Retired Shell Australia boss Ann Pickard, who recently joined Woodside Petroleum’s board, recently gave the example of the amount of documentation her company had to produce around Prelude versus a similar project initiated in Canada, which revealed a magnitude of complexity in comparison that wasn’t good news for Australia.
The other issue, Lynn said, was that Australia had changed the rules too often – and whether other jurisdictions are doing it or not is “irrelevant”.
“There is a real concern in relation to the regulatory environment, and tax is a classic example, with the Senate hearing that went after the international players,” Lynn said.
“There is a lack of confidence with international majors and investors around the stability of the Australian regulatory framework, and tax is a specific example of that,” he said.
“Then you have the interpretation of the existing regulatory environment, even if that stays the same, like the domestic gas reservation policy, may change over time.
“There’s enough complexity in terms of international markets, and [oil companies] are telling me that the level of confidence in what that looks like [in terms of how to do business in Australia] into the future has been shaken based on historical precedent, and as a result they assess Australia with a higher level of risk than when they did 10 years ago.”
Yet when it’s all said and done, Lynn believes Australia is still very attractive for doing business compared to many parts of the world; the risk associated with Australia is just greater than it was assessed to be previously.
Australia’s regulatory complexity has been brought into focus for major oil companies who are significantly cutting back on capital budgets.
Given this landscape, Lynn said that with the landscape in Australia “one of diminishing productivity over a long period of time, we then become all things considered less attractive destination for investment than where we were when everyone was making the FID decisions”
He believes Australia’s strong advantage lies in the investments already made, so it’s going to be a lot easier to leverage existing infrastructure whether it be Curtis Island or north-west Western Australia into brownfield investment than it would be to create greenfield investment in Africa or South America.
Australia also has a real advantage in proximity to growth markets which still exists.
“World demand, including in Asia, has come off the boil, but Asian demand is still expected on every forecast I’ve seen to outgrow global norms in LNG demand, and we’re closest to that market in terms of distribution costs,” Lynn said.
“So we have gas, infrastructure and proximity to markets. The major thing we’re lacking is confidence in our regulatory system and productivity – so cost of investment then the ongoing sustainable cost of running the asset.”
