Australia's Economic Performance Is Among the Best in the World and the Outlook Remains

Australia's economic performance is among the best in the world and the outlook remains positive. Australia's diverse, multicultural society has a very high standard of living and a long-standing, democratic culture based on the rights of the individual and the rule of law. Australia is politically stable and enjoys a high degree of social harmony that is among the best in the world.

Australia is an attractive investment location with abundant energy resources for development and export, a stable business environment with active participation by some of the largest multinational companies in the world,close proximity to the major demand markets of Asia and access to a highly skilled workforce and innovative technologies.

There are no government-owned resources companies and no requirement for government participation in resources projects. The Australian Government does not apply export controls to liquefied natural gas (LNG) projects.

With a regulatory framework that keeps pace with financial market developments, Australia possesses an internationalised currency, no foreign exchange controls, and a highly effective intellectual property rights regime.

With a Gross Domestic Product (GDP) of US$1.5 trillion, Australia is the 12th largest economy in the world and the 4th largest in the Asia region. Australia has enjoyed many years of uninterrupted economic growth, including during the global financial crisis of 2008. Since a brief recession in 1991, the Australian economy has experienced an average GDP growth of 3.3 per cent perannum. This annual growth is forecast to continue to 2017-18.

The Australian economy has continued to prove its resilience throughout the global financial crisis. Sound macroeconomic policies and structural reform during this time increased Australia’s responsiveness to shifts in the global economy and enabled Australia to better withstand global economic pressures to maintain strong economic fundamentals.

In terms of real GDP, Australia’s economic growth in
2012-13 was 2.6 per cent and is forecast to reach 2.7 per cent in 2013-14. Recent economic data suggests that domestic production for key commodities will increase consistently over the next few years as Australia begins the transition from the construction phase to the production phase, with a corresponding robust growth in export volumes and export earnings.

Australia continues to be an attractive destination for transnational corporationsand in 2013 was the eleventh largest recipient of foreign direct investment (FDI) inflows in the global economy. According to the United Nations Conference on Trade and Development, FDI inflows to Australia in 2013 totalled US$40 billion.

Australia has been rated the third freest economy in the world by TheWall Street Journal 2014 Index of Economic Freedom. The indextracks the progress of economic freedom around the globe and provides evidence of dynamic gains from greater economic freedom. From 186economies, Australia ranks third behind Hong Kong and Singapore. The survey states that Australia continues to set the standard for clean, corruption-free government and benefits significantly from its transparent and efficient business environment, and open-market policies.

Australia is building on its position in the Asia-Pacific region and has an established a network of Free Trade Agreements (FTAs) with key trading partners in the region.Australia currently has seven FTAs currently in force with New Zealand, Singapore, Thailand, US, Chile, the Association of South East Asian Nations (ASEAN) (with New Zealand) and Malaysia. The countries covered by these FTAs account for 28 per cent of Australia's total trade.Further information is available at

General facts – Australia

• six states – New South Wales, Queensland, South Australia, Tasmania, Victoria and Western Australia;

• three mainland territories – the Northern Territory, the Australian Capital Territory and the Jervis Bay Territory; and

• seven external territories – Ashmore and Cartier Islands, Australian Antarctic Territory, Christmas Island, Cocos (Keeling) Islands, Coral Sea Islands Territory, Heard and McDonald Islands and Norfolk Island.

• Parliamentary democracy based on Westminster system; Federal Parliament consisting of House of Representatives and Senate.

Key offshore petroleum statistics

Source: ABS 5204.0, ABS 5368.0, ABS 6291.0.55.003 and ABS 8412.0.

Why explore for oil and gas in Australia?

The probability of finding a new petroleum province in Australian waters remains high.

The first Australian exploration permit was granted in 1959 in the Gippsland Basin. As at February 2014, there are currently 210offshore exploration permits, 54 retention leases and 92 production licences. From the first oil and gas discoveries in Bass Strait, the North West Shelf and the Timor Sea through to more recent discoveries in the Carnarvon and Browse basins, there is no doubt that offshore Australia is one of the world’s most highly prospective areas for petroleum.

Australia is a gas-rich nation. According to the Australian Energy Resources Assessment, around 92per cent of Australia’s 158 trillion cubic feet of known conventional natural gas resources are located in the Carnarvon, Browse and Bonaparte basinsoff the north-west coast of Australia.Known gas resources are also located in south-west, south-east and central Australia, alongwith large coal seam gas resources in the coal basins of Queensland and NewSouthWales and the potential for shale and tight gas resources in South Australia, Western Australia and the Northern Territory. Despite this, much of the continent and its offshore areas remain underexplored, and in some areas unexplored, with over 40onshore and offshore basins awaiting in-depth exploration to determine their full potential.

In 2008, the United Nations Commission on the Limits of the Continental Shelf (UNCLOS) confirmed the location of the outer limit of Australia’s continental shelf, which resulted in the extension of Australia’s jurisdiction over an additional 2.56million square kilometres (km2) of seabed. Australia now hasmore than 14.62million km2of maximum seabed territory, which is in the top three largest marine jurisdictions in the world along with the United States of America and France. Australia is now custodian to around 4 percent of the world’s total seabed, an area with significant untapped exploration potential.

Australia's geographic location ensures it is well placed to meet the rapidly expanding energy needs of the
Asia-Pacific region.

The strong consumption growth of oil in non-OECD markets and the sound outlook for LNG in the Asia-Pacific region, together with relatively resilient petroleum prices, provide the economic drivers for ongoing investment in exploration in Australia. Increased demand for energy with the industrialisation of China and India, and other emerging Asian economies, underpins these positive market conditions.

Some attributes that make Australia an attractive location for offshore oil and gas exploration include:

• the regular release of new exploration acreage covering a range of regions from mature to frontier;
• access to high quality geoscientific data and analysis at low or no cost;
• continued government support of pre-competitive geoscientific exploration, data acquisition and analysis;
• a free market philosophy which welcomes foreign investment – Australia has no mandatory local equity

requirements and no government-owned petroleum companies;

• close proximity to markets in the growing economies of the Asia-Pacific;
• an attractive policy and legal framework for oil and gas development, conducive to companies of all sizes;
• security of title with the right to retain and/or develop a discovery, subject to meeting the specified terms of a retention lease or a production licence;
• transparent and practical regulatory requirements covering all stages of petroleum operations;
• expanding physical infrastructure, sophisticated technical and services support, a highly educated workforce and pool of skilled petroleum professionals;
• an internationally competitive profit-based tax system;
• government assistance with project facilitation, including fast-tracking of approvals processes for declared major projects; and
• an open and competitive economy, including deregulated banking and foreign exchange arrangements, a sophisticated capital market and a good record of industrial harmony.

Australia – a resource rich nation with further growth potential

Australia has an enviable history in the successful development of its abundant natural resources.

According to the Australian Bureau of Resource and Energy Economics (BREE), Australia’s energy and mineral commodity resource export earnings totalled $176billion in 2012-13, with energy exports accounting for $69 billion or 39 per cent of this total.

Export earnings in 2013-14 are expected to increase by 17per cent due to robust growth in both mineral and energy commodity export volumes and a lower Australian dollar. Energy export earnings are forecast to increase by 9 per cent to $75 billion, underpinned by higher earnings from LNG (up 15 per cent) and metallurgical coal (up 6 per cent).

Australia has over 300 crude oil fields with most production coming from six major basins: the Carnarvon, Browse, Bonaparte and Perth Basins offshore WesternAustralia and the Gippsland and Bass Basins off
south-easternAustralia.

Australia’s identified oil resources have been estimated at 5 338 million barrels (mmbl), made up of 1 264 mmbbl of crude oil; 2 733 mmbbl of condensate; and 1 341mmbbl of liquefiedpetroleum gas (LPG).

In 2012-13, Australia’s exports of crude oil and condensate declined slightly by volume (year on year) to 118million barrels. The value of exports fell marginally toA$12.5 billion due to softer global oil prices.

Production is forecast to increase by 2.4 per cent by volume in 2013-14 following the scheduled start-up of several new smaller projects, with a rise in value of 14 per cent to $14.2 billion. Asignificant rise in production is forecast from 2017 with the commencement of condensate production associated with the Prelude and Ichthys LNG projects.

In 2012-13, Australian exports of LPG and petroleum refinery products totalled approximately 13.3 mmbbl and 7.3mmbbl respectively.

Global trade for LNG has more than doubled in the past decade. In 2013, Australia exported 24 million tonnes (mt) of LNG, overtaking Indonesia to become the world’s third largest LNG exporter.Exports volumes are projected to increase at an average annual rate of 36 per cent to reach 90mt by 2017-18.

Current production is supported by Australia’s world-class LNG export facilities that utilise the large quantities of natural gas found off Australia's north-west coast.

In addition to our three operating projects (North West Shelf, Darwin LNG and Pluto Train 1), Australia currently has seven LNG projects under construction with capital expenditure of over A$180billion including three conventional gas-based projects: the Gorgon project (15.6mtpa), the Wheatstone project (8.9mtpa),and the Ichthys project (8.4 mtpa); the Prelude floating LNG project (3.6 mtpa); and three coal seam gas-based LNG projects: the Queensland Curtis LNG project (8.5 mtpa), the Gladstone LNGproject (7.8mtpa),and the
Australia-Pacific LNG project (9.0mtpa).

Realising Australia’s petroleum potential

Offshore petroleum exploration

Australia has the potential for further discoveries of oil and gas with many offshore basins remaining largely, or entirely, unexplored. This potential has been grasped by companies with around $2.6 billion spent on private offshore petroleum exploration in Australia in 2012-13.

Only around 20 per cent of Australia’s offshore basins are currently covered by petroleum titles. Although exploration activity is primarily focused on finding resources close to existing discoveries to improve the economics of proposed projects, frontier exploration is growing. Australia’s underexplored frontier basins hold the greatest promise of making a major new discovery. To encourage exploration in these areas and help reduce the risk of exploration, Geoscience Australia through Australia’s Offshore Energy Security Program has undertaken a series of programs aimed at providing precompetitive and geological information aimed atimproving the understanding of the petroleum prospectivity and resource potential of frontier basins.

In general, offshore petroleum exploration activity in Australia has remained steady in recent years.

Offshore petroleum development

The Australian petroleum industry is entrepreneurial, innovative and has achieved significant success as recent development projects under consideration and under construction show (see below table).It is made up of a number of small, medium and large companies, many of whom operate on the international scene.Australia's modern legal framework, petroleum tenement system, favourable taxation regime and economic environment explain Australia's consistent high ranking in international investment surveys.

Australia’s LNG development projects

Australia’s domestic gas market

The Australian domestic gas industry has strong growth potential, paralleling growth in the industrial, minerals processing and electricity generation sectors.

In 2012-13, Australia’s total gas production was 63 billion cubic metres (bcm) or 2 346 petajoules (PJ), an increase of 13 per cent year on year. Production growth in 2013-14 is forecast to increase by 2 per cent in 2013-14 then increase substantially once LNG and domestic gas projects in Western Australian and Queensland commence production in early 2015. Around half of Australia’s gas production is exported as LNG with the remainder meeting domestic demand. Australia’s gas production is projected to increase at an average annual rate of 11 per cent over the period 2014-15 to 2017-18.

Over the last 20 years, Australia’s domestic natural gas industry has grown from a relatively small base of 688PJ in 1989-90 to being the third most significant domestic energy source after coal and oil. In 2012-13, Australia’s domestic gas production was a record 1 102PJ, up 4 per cent year on year. The increasing share of natural gas in Australia’s energy consumption is expected to continue with future demand for natural gas estimated to reach 2575PJ in 2029-30.

Domestic gas market reform over the past decade has increased transparency and competition in the sector, as well as brought industry regulation under the national energy framework in line with electricity. Ministerial Council on Energy initiatives such as the National Gas Law and National Gas Rules, National Gas Market Bulletin Board and the Short Term Trading Market for gas have provided a framework for greater transparency and promoted the use of natural gas for domestic consumption across Australia.

Significant expansion and integration of Australia’s domestic gas transmission and distribution network in recent years, particularly in south-eastern Australia, has facilitated growth in established gas markets and introduced gas into new regional centres.

This is enhancing basin-on-basin competition for the supply of gas that will be beneficial to gas consumers while also encouraging the development of new industries and increasing opportunities for suppliers to commercialise gas discoveries.

New offshore domestic gas projects are currently under development in Western Australia and in the Gippsland and Otway Basins off southern Victoria. In addition, there are a number of gas pipeline projects underway in South Australia, Victoria, Queensland and New South Wales which will further integrate the pipeline network and enable gas from new upstream developments to be transported to domestic gas markets as appropriate.

References

Australian Bureau of Statistics, Cat. 5204.0 - Australian System of National Accounts, Table 5

Australian Bureau of Statistics, Cat. 5368.0 - International Trade in Goods and Services, Australia, Tables 12 and 13

Australian Bureau of Statistics, Cat. 6291.0.55.003 - Labour Force, Australia

Australian Bureau of Statistics, Cat. 8412.0 - Mineral and Petroleum Exploration, Australia, Table 6a

Australian Petroleum Production and Exploration Association, State of the Industry 2012

Australian Trade Commission, Investor Update – Data Alert, 22 January 2014

Australian Trade Commission, 2014 AustradeBenchmark Report, 15 January 2014

Bureau of Resource and Energy Economics, Resources and Energy Quarterly, December 2013

Geoscience Australia, Australian Energy Resource Assessment 2012

Geoscience Australia, Oil and Gas Resources of Australia, Petroleum Reserves by Basin

United Nations Conference on Trade and Development, Global Investment Trends Monitor, No. 15, 28 January 2014