Q&A: The impact of world oil price in the NT

by | Apr 25, 2020 | Business, COVID-19, Opinion | 0 comments

Australian Petroleum Production and Exploration Association Northern Territory director Keld Knudsen answers questions on the impact of the drop in the world oil price on the NT.

The NT predominantly has gas producers in the heavy industry sector, how does the world oil price effect these operations?

Because projects characteristically require large-scale investment, the sales of liquefied natural gas (LNG) are generally made under long-term contracts. These long-term contracts are often linked to the price of oil. The reduction in the oil price will therefore influence LNG prices. However, they are not in direct proportion to crude oil prices. It is important to note that these are long-term projects and returns are calculated over decades, not months or years. The long term outlook for natural gas in the Asia Pacific region remains strong.

Onshore fracking has been halted due to the coronavirus restrictions. Given the shock in the base energy prices, are the those fracking operations at risk of not restarting?

These are challenging times but long-term demand for gas both internationally and domestically remains strong. Our members have strongly stated their commitment to the Territory, and the future of onshore gas is positive.

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Does the lower energy price mean we will have cheaper power in NT households in 2020?

APPEA does not represent downstream distribution such as electricity generation, domestic gas suppliers and petrol stations and cannot talk on their behalf. However, lower commodity prices do generally result in lower energy costs. But it is worth noting that there are a range of other factors that go into calculating your energy bills – including transmission and delivery costs, government charges, etc.

We have now seen some large Australian businesses in financial trouble with the most prominent being Virgin going into administration. Are we at risk of any of the gas operators in the NT also going into administration?

Business conditions are definitely challenging right now as a result of the oil price reduction and COVID-19 containment restrictions. The long-term demand for gas both domestically and internationally is still there. Ninety nine per cent of the electricity generation in the Northern Territory is from oil and gas production.The power continues to be delivered and is essential to Australian homes, manufacturers, businesses, electricity suppliers and public facilities. So, in this unprecedented time, it’s essential we continue to do so.

We are still seeing several gas ships leave our harbor weekly from the Ichthys and Darwin Liquefied Natural Gas plants, will the quantity of ships reduce given reduction in world demand during this pandemic?

As stated above, the production of LNG has already been sold under long-term contracts. Australia shipped more LNG cargoes in March 2020 than in March 2019.

National fuel prices at the bowser have dropped below $1.00 on the east coast. Can we expect these prices in the NT?

As above for energy prices, APPEA does not represent downstream distribution such as electricity generation, domestic gas suppliers and petrol stations and cannot talk on their behalf.

The Australian Institute of Petroleum can provide more information on petrol pricing in Australia. www.aip.com.au

Businesses without revenue cannot access the Job Keeper program support from the Australian Government. Does this affect your membership?

That is true for our junior explorers. The Job Keeper program can only be accessed by companies that have a turnover. Exploration companies that do not produce and sell oil and gas operate more like a research and development venture, in that they access their income from the capital market. We are working with the government on what is available to those of our members that this impacts.

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