LNG boom remains a transformative opportunity: Deloitte

As operators move from investment and construction to operations and production, Australia’s LNG boom remains a transformative opportunity for both the economy and for those active in the sector, according to Deloitte.

In a new paper, entitled Energy strategy: The game has changed and prepared to coincide with the Australian Petroleum Production and Exploration Association (APPEA) 2015 Conference and Exhibition, Deloitte national oil and gas leader Mike Lynn and Deloitte Access Economics partner Matt Judkins provide an overview of the geopolitical and economic forces at play, the cost and productivity challenges for the Australian and addressing rules, regulation and red tape.

Mr Judkins said the plunge in oil prices has significant economic consequences around the world, and while the challenges for the Australian sector are significant, as a net importer of oil, the implications for the Australian economy should be positive.

“Consumers benefit from the shift in income through direct savings on fuel purchases, and there is also a positive flow-on effect for Australian businesses, particularly those where fuel accounts for a large proportion of input costs,” Mr Judkins said.

“But while a lower oil price holds many benefits there are, of course, some negative consequences that merit serious consideration from policy-makers.”

Mr Judkins added that most LNG contract prices are indexed to the price of oil and so government tax revenues will be particularly affected.

LNG operators and energy trading risk management

Deloitte Assurance and Advisory partner Heidi Forbes told the conference that Australian LNG has a unique energy risk profile, and that its export had significant implications for the domestic energy sector.

“Since the early 2000s, there has been a progressive maturing in the way energy trading is understood from a market, credit, liquidity and operation risks perspective,” Ms Forbes said.

“Even within the same organisation, significant differences in approaches can exist between, for example, LNG, natural gas and electricity.”

Deloitte’s new paper Energy trading risk management: Where to now? looks at why some commodities are more mature from an energy trading risk perspective, and provides a look at what a lift in energy trading risk maturity might look like.

LNG industry missing out

Additionally, Deloitte said Australia’s emerging LNG industry could be missing out on millions of dollars in value as a result of procurement practices and the accounting treatment of large-scale engineering works.

According to Deloitte, large engineered assets, such as power plants, camps, LNG facilities, gas plants, built under contract by are often handed over to the customer on completion, accompanied by operating manuals and maintenance instructions, but then recorded as a single, lump sum accounting entry.

Deloitte Tax partner Jonathan Schneider said this approach for complex assets hides a lot of value, ignoring a fixed-asset register that can drive better decision making across business.

Click here to view Deloitte’s latest reports.

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