Australia’s bright oil and gas industry future
The COVID-19 pandemic has hit industries hard since lockdowns and restrictions on travel came into effect across the world. This is especially adding pressure on the US oil and gas industry which, according to a new Deloitte study, is experiencing a compression due to multiple overlapping effects in 2020.
While the outlook for the US is challenging, Australia’s gas industry has a more optimistic future, with the Australian Government focusing on investing in the gas industry as part of its pandemic recovery.
The state of the US shale gas industry
Deloitte’s new study The great compression: Implications of COVID-19 for the US shale industry predicts that there is an ‘economic storm on the horizon’ for the US shale gas industry.
According to the study, while the US shale gas industry has enjoyed exceptional growth and success over the past 15 years, the industry boom peaked without making money for the shale gas industry in aggregate. And just as the industry was finding its feet and the new normal to break even, the pandemic hit across the globe. Worldwide lockdowns and restricted travel caused a slump in petroleum demand and has highlighted the fragile state of the oil and gas industry in the US.
The Deloitte study cites multiple factors affecting the industry in the US and causing the compression, including reduced demand, low commodity prices, debt loads, capital constraints and health repercussions due to the pandemic crisis. These factors are occurring simultaneously and hitting the industry hard. As a result this has caused the petroleum price per barrel to drop from the previous average of $50–60/bbl in 2019 to $30-40/bbl in 2020 (and famously even dipping into negative territory in May 2020), due to limited storage availability and low liquidity.
Deloitee said that oil and gas demand is also not predicted to return to pre-pandemic levels for the foreseeable future, casting doubt on how the US shale gas industry can recover from this crisis – particularly when you consider the fact that the US shale patch bears some of the highest production costs in the world, requiring a breakeven price of between $50 and $55/bbl. By comparison, Australia’s LNG projects have a breakeven price of around $30/bbl.
Australia’s bright gas future
While the outlook for the US shale gas industry is poor, the state of the industry in Australia is much more positive. As one of the major global gas exporters, Australia has a strong oil and gas industry, which is backed by strong government support.
Similar to the US, Australia has felt the impacts of the COVID-19 pandemic on the gas industry. However, the Federal Government is looking toward the role that gas can play in the country’s economic recovery.
Since declaring an official recession in early June, the Federal Government in partnership with the National COVID-19 Coordination Commission (NCCC) has been exploring a massive expansion of the gas industry in Australia as a cornerstone of the recovery effort.
Draft reports from the NCCC have recommended that the Federal Government focus on investing in the gas industry to help the country rebound from the pandemic. The draft report outlined several ways the government can support the future of the gas industry and economic recovery including: lifting the moratorium on coal seam gas in NSW and the remaining gas exploration moratoria in Victoria, reducing red and green tape, lowering the cost of pipelines, underwriting new gas supply ventures, considering tax incentives for priority infrastructure and many more.
Investing in Australia
With Australia’s gas industry performing strongly and supported by governments and industry, now is the perfect time to consider investing in Australian gas market. As the US shale gas industry experiences a compression and the lowest oil and gas prices in 15 years, Australia is the ideal location to explore and expand gas possibilities.
Powered Australia has a wealth of experience and a proven track record of helping companies reach new levels of sales performance in the Australian oil and gas, resources, and mining sectors. Powered Australia is on hand for a confidential discussion about the opportunities down under has to offer.
Deloitte, 2020. The great compression: Implications of COVID-19 for the US shale industry, Pg 3. https://www2.deloitte.com/us/en/pages/about-deloitte/articles/press-releases/the-great-compression-implications-of-covid-19-for-the-us-shale-industry.html
Deloitte, 2020. The great compression: Implications of COVID-19 for the US shale industry, Pg 3-4. https://www2.deloitte.com/us/en/pages/about-deloitte/articles/press-releases/the-great-compression-implications-of-covid-19-for-the-us-shale-industry.html
https://www.cnbc.com/2020/04/02/coronavirus-whiting-petroleum-is-just-the-first-domino-to-fall-in-us-shale-wipeout-strategist-says.html
