By Glenda Korporaal
Chevron's revelation yesterday of a $9 billion cost blowout on its Gorgon natural gas venture off the coast of Western Australia confirms the warning of other resources companies about the rising cost of doing business in Australia.
It comes as resource giants Rio Tinto and BHP Billiton have also been expressing concern about costs in Australia, with BHP in particular taking a much more critical view of its plans here.
It also follows news earlier this year of a 33 per cent blowout in costs reported by gas company BG Group on its $20bn LNG export terminal project in Gladstone in Queensland.
And gas company Woodside Petroleum has also reported a 25 per cent rise in its Pluto project, which came on stream this year, from $12bn to $15bn.
Small wonder that Woodside is taking its time in making a final investment decision on building a new LNG receiving terminal at James Price Point, north of Broome on the West Australian coast, which would take gas from its next proposed offshore venture, Browse.
As Woodside chief executive Peter Coleman told The Australian's Global Leaders Insight series on Sky Business last week, Woodside and its joint venture partners, including Shell, Mitsui and Mitsubishi, have already spent $1bn working up the project to date including $100 million in environmental studies specifically on the James Price Point terminal.
Shell wants to drop the onshore terminal idea and go with a Waterworld-style offshore terminal, while Coleman is keeping his options open.
In Hollywood, Kevin Costner's Waterworld, which was made in 1995, had a reputation for being the most expensive film ever made at the time, renowned for its horrendous cost blowouts because of its location on an offshore floating platform.
But in the Browse case, the high cost of having an offshore floating receiving terminal is being seen as preferable, by Shell at least, than the cost of having an onshore terminal in Western Australia.
As Coleman deals with the rising cost of doing business in Australia he is also aware of the increasing sources of competitive gas coming on stream globally.
Since taking over as Woodside chief executive in May last year, Coleman has moved to diversify the company's interests, which have so far been heavily centred on Western Australia.
In May, when Financial Services Minister Bill Shorten visited Israel, he was asked by Prime Minister Benjamin Netanyahu for Australian assistance in developing Israel's offshore natural gas industry.
Some six weeks ago Coleman visited Israel to meet the Prime Minister and other executives in the Israel oil and gas industry.
The result was this week's announcement that Woodside would take a 30 per cent interest in the Leviathan gasfield in the Mediterranean Sea off the coast of Israel, paying an upfront fee of almost $700 million. Coleman said the deal was "a significant step towards realising Woodside's ambition to secure world-class growth opportunities".
Getting foreign interest in developing Israel's offshore gas fields has not been easy given the potential for it to affect an investing company's ties with Middle Eastern countries, and other possible security issues.
Resource-poor Israel as a gas producer and a potential exporter? Who knew?
Woodside is also looking at the potential of other opportunities in Myanmar, the Mediterranean Sea off the coast of Cyprus and the US.
Australia has always been in a competitive situation as an LNG exporter, particularly against countries in the Middle East, but the US energy boom has dramatically changed the supply equation again.
As costs are rising here, buyers in the future could be looking to choose from an increasing array of suppliers.
The US is cutting back on its oil imports and has allowed one company, Cheniere Energy, a licence to export LNG from the Gulf of Mexico.
Its terminal, which is being converted from an LNG importing terminal to one that can handle exports, is expected to begin exporting from 2015.
The US Department of Energy is now considering whether to approve more permits from companies wanting to export gas.
US energy expert Karen Harbert, who is visiting Australia this week for a conference yesterday on energy security hosted by the US Studies Centre at the University of Sydney, expects that a decision could come within months, if not weeks.
The outlook for LNG exporters such as Woodside could hang on how much the DoE decides to open up the export market. In contrast to Australia, which freely allows commodity exports, gas exports in the US are restricted.
Gas exports are a sensitive political issue with the general view that most of the supply should be kept for the domestic market.
Harbert, who runs the Institute for 21st Century Energy, an arm of the Washington-based US Chamber of Commerce, believes that the DoE will allow more gas exports but it will be far from open slather.
She argues that US gas exports will not really compete with those from Australia on the basis that "there is enough opportunity for everyone". But the prospect of the US becoming a gas exporter is already having an impact on world gas prices and expectations of future prices.
Asked about the potential impact of US gas exports on the Australian LNG market at the conference yesterday, Drew Clarke, the secretary of the federal Department of Resources, Energy and Tourism, pointed out that existing LNG projects in Australia are going ahead on the basis of contracts already locked in with buyers.
But he said the real issue could be how it affected future investments in new projects here.
"If North America — the US and Canada — starts exporting gas to the Pacific basin it will change the market dynamics and Australian producers will have to respond to that," he said.
The world energy supply situation is changing at a time when costs in Australia are rising.
The implications for a country which has been riding on the back of its energy and resource exports for so long could be profound.
This article was originally published by The Australian