Open-access midstream infrastructure and its effects on the Australian gas market

Australia’s energy industry has evolved around a vertically integrated structure with exploration and production (E&P) companies carrying out production, processing and development of associated infrastructure, such as pipelines. We suggest the next innovation for productivity improvements is a ‘North American model’, whereby a midstream service industry develops, owns and operates shared gas processing and transport infrastructure, allowing the E&P sector to direct limited capital to focus on exploiting and marketing the resource without necessarily building or operating the associated infrastructure. E&P companies are being challenged by the lower oil prices, and balance sheets are under strain from high debt levels. Large joint ventures are no longer the natural owners of gas processing facilities as the original gas reserves decline and other reserve owners seek to use spare capacity. Junior explorers are also challenged as capital is redirected elsewhere while oil prices remain low. Herein we demonstrate that collaboration in shared infrastructure will restore value. Benefits to E&P companies include minimising upfront capital, lower unit cost through scale and sharing of risks with other projects and partners. Midstream infrastructure owners and operators can provide additional benefits because they typically have lower rates of return expectations, lower capital costs and debt premiums, have specialist knowledge and enable sharing of production and transportation costs. Through case studies, we outline the key commercial considerations from the perspective of both the explorer and the asset owner, demonstrate the potential financial benefits and promote further debate on what is stopping the development of this midstream service industry in Australia.