Industry Trend Analysis - Output Declines, LNG To Drive Long-Term Oil Decline - FEB 2018

BMI View: Australia ' s crude oil production will remain on structural decline over our 10-year forecast period due to significant cost and regulatory barriers to greenfield and onshore oil developments, coupled with shifting investment focus towards natural gas and LNG.

We forecast Australia's crude oil production to decline at an average rate of 4.0% over our 10-year forecast period due to natural declines and as upstream investment increasingly shifts towards natural gas projects, in support of the country's burgeoning LNG industry. Crude oil production averaged 318,000b/d over the first nine months of 2017, a decrease of 8.5% on year, amid a muted rebound in oil prices and a general pullback in spending among major producers. Although stronger oil prices will be positive for investment appetite, we expect most of the increase in spending to target natural gas plays, particularly as existing oil basins mature and firms boost the search for more feed gas to support brownfield expansion of existing LNG export projects. ( see ' Brownfield Expansions To Underpin Longer-Term LNG Growth ' , November 16)

Crude Set For Long-Term Decline
Australia - Crude Oil Production & % chg y-o-y
f = BMI forecast. Source: EIA, BMI

Most of Australia's oil production is concentrated across a few giant offshore basins, namely the Carnarvon, Browse, Bonaparte and Gippsland basins. Costly EOR programs have largely failed to stem declines in these basins over the past few years, and this trend will become more pronounced over the coming years, as producers disengage from high-cost oil plays.

Carnarvon, Gippsland Decline A Major Drag
Australia - Oil Production By Basin, 000bbl (LHS) & Western Australia - Exploration Expenditure, USDbn
Source: Australia Bureau Of Statistics, BMI

Investment in greenfield oil projects will be few and far between, with Australia's notoriously high cost structure and significant regulatory barriers to onshore, unconventional developments proving major impediments. For instance, onshore drilling (including hydraulic fracking) remains suspended across four states (NSW, Tasmania, Northern Territory and Western Australia) and permanently banned in one (Victoria). Ongoing appraisal and development works in the Cooper, Canning and Eromanga basins and natural gas liquid additions from gas developments offer limited upside to production, though these will lack sufficient scale to offset larger declines in the aforementioned basins.