Australia would miss out on a once-in-a-generation liquefied natural gas (LNG) boom unless it reduced costs by up to 30 per cent, says a new report.
Where once Australia rode on the sheep’s and manufacturing’s back, LNG was set to become the new export to rely on, says the report by leading global management consultants McKinsey & Co.
The report is one of several timed to coincide with the Australian Petroleum Production and Exploration Association’s conference, including a critical study calling for protecting gas supplies for domestic manufacturers.
Costs had risen so much in the past decade that they were now 20-30 per cent higher than that of competitors in North America and East Africa, said the McKinsey report.
It called on operators and builders of the nation’s LNG projects to work together to drive down costs and government to provide supportive policies.
Origin Energy’s chief executive Grant King said in recent days he was in talks with Arrow Energy in Queensland about a possible partnership with their respective gas projects.
“Such cooperation is common in other regions such as the UK and Norway, and is also the emerging pattern in a major rising competitive region: East Africa,” McKinsey said.
Examples included LNG producers co-operating to jointly standardise and qualify suppliers and save time on tendering, industry and government co-operating to improve infrastructure in relevant remote areas.
The industry could also collaborate by sharing infrastructure, facilities, maintenance and health and safety services.
Productivity had declined to be behind Canada and the US and also had to be improved, said the report.
The report suggested governments lower some tax and royalty payments and rules at least until new projects had become viable and then recoup, while cutting regulatory costs, supplier costs and improving the productivity of workers.
If Australia got it right, LNG was set to become almost as important to the economy as iron ore within a decade, as the suite of at least seven new projects start producing largely to meet Asian energy demand.
“The sector is now at a point where getting productivity right is likely to secure tremendous additional investments with corresponding wealth creation for the nation,” it said.
“Conversely, failing to do so will mean losing this opportunity for at least a decade and possibly longer.”
The report said that if the projects went ahead, Australian gross domestic product would increase by 1.6 per cent ($320 billion), about 150,000 jobs would be created, and tax revenues created equivalent to nearly halve total federal debt.
