How to save Australia’s oil industry from the worst of the oil price shocks
Posted July 04, 2018 15:09:20 The world is about to get another oil shock.
A series of price drops will hit Australia’s energy industry and oil producers hard.
But it won’t be the same as the price spike that hit the US in late 2016 and early 2017.
A new report by Australia’s Oil & Gas Council (OGC) has found the industry is well-positioned to withstand the blow.
The report’s authors predict Australia’s major oil producers will benefit from lower prices and will be able to weather the shock, despite the impacts on the economy.
It is the second time the OGC has published its annual outlook for the oil and gas industry.
The previous report forecast an oil price shock of $US75 ($95) per barrel in 2022, $US80 per barrel the year after that, and $US70 per barrel by 2026.
But OGC President and CEO Ian McBride says the report is an important reminder of the power of industry.
“Oil prices are unpredictable, so they do have a direct impact on energy production,” he said.
“But we can still see the big picture for the industry.”
The oil price impact on Australia’s economy is a sobering one.
The OECD predicts the industry will be unable to adapt to a $US150 ($195) per-barrel decline in prices and is predicting an annual loss of $1.6 billion.
It also says the industry’s capacity to recover from a price shock would be “significant”.
The OGC is calling on governments to enact a carbon price in place of a price freeze and for oil companies to do more to keep the lights on.
Mr McBride said the government has a number of actions it can take to make the industry more resilient.
The first step is to enact carbon pricing.
“The carbon price will help offset the impacts of lower prices on energy costs,” he told the ABC.
If the price is a higher price, the oil companies will have to spend more on electricity and diesel, but if the price goes down, the companies will save more money on fuel costs.
In 2019, the OECD forecast a $40 per-tonne CO2 emissions rise.
That is down from $55 in 2020, and by 2019-20, the price of a barrel of oil was down by $US3.10.
According to OGC’s forecast, by 2023, the average Australian household will have a $20 ($25) per year net profit from their electricity and gas use.
Energy minister Josh Frydenberg has also pledged to introduce a carbon tax of $20 per tonne of CO2 emitted by the oil industry.
But the OGLC warns that a carbon fee could not offset the $US100 billion ($120 billion) of oil price declines and is calling for the federal government to introduce an additional tax.
Last week, the Federal Government announced it will introduce a $10 per ton of carbon tax on oil and other fossil fuels by 2040.
But the OGEC says this will only go so far.
Australia’s oil and energy industry is expected to grow by almost 5 per cent this financial year and by another 5 per of the next financial year.