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Australia: Warning on oil hunt slip

Surging oil prices should be seen as a warning and not a cure for declining oil and gas exploration which threatened to leave Australia dangerously reliant on overseas supplies, the head of the nation's peak oil and gas body warned yesterday.

Australian Petroleum Production and Exploration Association chief Barry Jones said governments were kidding themselves if they thought that record oil prices around $US40 a barrel would be enough to encourage the level of exploration needed to boost Australian production.

"Politicians and bureaucrats would be living in fantasy land if they believed world record oil prices in 2004 would crystallise the necessary exploration momentum to overcome Australia's looming reliance on imported oil stocks," he said from Darwin, where the South-East Asia Australia Offshore Conference kicks off this morning.

"We just had a week in which every news service in this country has been running stories about instability in the Middle East, how OPEC does not have any more supply capacity and how Chinese demand is growing.

"If all that is correct . . . then this country has a real problem. But where is the urgency in policy-making, and the people saying this is a serious issue? Waiting 10 years for this to hit us is not an answer."

According to APPEA figures, just $871 million was spent on oil and gas exploration in calendar 2003, $200 million less than in the previous year despite a steady rise in oil prices from an average of $US29 a barrel two years ago to last week's record price above $US42 a barrel.

That slide was critical given that Australia was facing a debilitating decline in its ability to meet domestic demand.

About 70 per cent of Australian demand is currently met by domestic production. But without substantial government "policy support" for exploration, APPEA believes the Australian industry will not be able to produce the 1.2 billion barrels of oil needed to cap its exposure to imported fuel over the next 10 years.

Australia's self-sufficiency level would then fall to just 22 per cent.

Mr Jones said the Federal Government's Budget promise to allow oil explorers to claim a 150 per cent deduction on all exploration in high-risk "frontier" areas was a step in the right direction, but really only applied to the top tier of industry.

"There should have been something for the small guys . . . because like the old adage, if you save your pennies, the pounds look after themselves," he said.

Mr Jones said the Federal Government's refusal to implement a flow-through shares scheme, which would allow individual investors to claim a deduction for investing in companies actively exploring, was a major blow to the industry.

WA, in particular, also needed to tidy up the approvals process by implementing the proposals of the Keating review, and boost funding for the State's Geological Survey.

The Keating review, completed two years ago, recommended 56 changes to streamline the approvals process which were being considered as part of the State Government's broader reform plans for the mining and exploration sectors.

But the centrepiece of that agenda was killed off last week, when State Development Minister Clive Brown shelved dramatic changes to the Mining Act because of opposition from the Chamber of Minerals and Energy.

Designed to free the logjam of 12,000 exploration and mining lease applications caught up in the Native Title process, the changes were largely opposed because of a big potential increase in the amount of information that would have to be provided by applicants.

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