CEDA Oil & Gas Industry Update
November 05, 2009
CEDA Oil & Gas Industry Update - Driving Australia's
Sydney, 5 November 2009
Mr Julian Segal
Managing Director & Chief Executive Officer, Caltex Australia
Caltex Australia is in the business of transforming and
distributing energy. We take primary energy sources like crude oil
and convert and distribute useable energy to end users. As the
global population grows and economies expand, the demand for energy
increases. That brings with it a raft of business opportunities in
the oil and gas industry, in the upstream for companies like Santos
and those represented here today by APPEA, and in the downstream
for companies like Caltex. There are also many opportunities beyond
conventional oil and gas for companies in the wider energy
The oil industry is going to change permanently over coming
decades. Natural gas, biomass and other renewables will become the
"new oil". The "downstream" will also change permanently. Some
traditional downstream oil companies may remain but will be
challenged as their business models lose relevance. New, more
broadly focused "downstream" companies will survive and prosper.
New competitors will emerge. All this means many opportunities are
available for Caltex in addition to fully exploring our existing
Growing energy demand also brings huge policy and technological
challenges. Climate change is one. We are seeing governments around
the globe taking action to reduce greenhouse gas emissions and
working towards ambitious targets. Energy security is another
challenge. Forecasters are predicting oil supply to peak in the
coming decades. So how do we ensure energy security for ourselves
and future generations and address climate change?
To cut energy demand and greenhouse gas emissions we will need to
improve energy efficiency. And to reduce greenhouse gas emissions
further we must reduce the carbon intensity of energy supply. Let's
take a closer look at greenhouse gas emissions.
The United States emits 20 tonnes of carbon dioxide per person from
energy-related sources each year, the highest in the OECD.
Australia emits about 18 tonnes per person and Europe emits an
average of eight tonnes per person. In contrast, China's emissions
are just five tonnes per person. And the world population grows by
200,000 people per day, mostly in developing countries.
Currently, the highest emissions per capita come from the developed
world. Reducing carbon intensity is a challenge for all developed
countries including Australia. We have a collective responsibility
to take the lead on emission reduction but without damaging
existing industries or limiting development opportunities for new,
lower carbon energy supplies.
But as developing countries move from farming to industry and
populations become urbanised, their economies and emissions are
growing rapidly. And to put that economic growth in perspective,
last month it was announced that China had grown by almost nine per
cent over the past 12 months.
If we look at the US Energy Information Administration's
projections to 2030, China's emissions will grow to eight tonnes
per person. That's the same as the European Union emits now. With a
huge population, China already has more emissions than any other
country so almost doubling those emissions per capita by 2030 is a
global challenge. Climate change is a global cost but also a global
opportunity as energy supply and demand are transformed to meet
energy security and climate change goals.
Currently most of the world's energy comes from fossil fuels, led
by oil and coal. But the International Energy Agency recently
warned that if the world wants to address climate change
effectively, fossil fuel energy consumption will have to peak by
The UK Energy Research Council has predicted that oil demand will
outstrip supply within 10 years leading to spiralling oil prices.
Meanwhile, Cambridge Energy Research Associates believes oil supply
peaked in the developed world in 2005 but demand will continue to
rise in developing economies.
So if fossil fuels are under pressure, what will the global energy
mix look like in the future?
First a reality check. The world will change but not overnight. In
the electricity sector the Energy Information Administration
predicts coal will continue to dominate, still meeting 30 per cent
of the world's energy needs by 2030. But it will increasingly be
supplemented by lower-emission energies such as natural gas,
nuclear power and renewable sources like wind, solar and geothermal
Likewise, oil will continue to dominate supply in the transport
sector. While some predict oil prices will skyrocket as demand
outstrips supply, with last year's price of $US147 a barrel only a
taste of things to come, others claim growth in oil demand has been
permanently impaired by the global financial crisis. It seems very
likely we will see a shortfall in conventional oil supply and
higher oil prices in the next two decades. Oil will increasingly be
replaced by other energy sources.
Natural gas, while still a fossil fuel, is widely seen as one of
the main transitional alternatives to crude oil and numerous energy
companies who traditionally produced oil have expanded into this
area. Australian finds are large and demand is high but so are the
costs. Coal seam methane is an important alternative source of
natural gas. But gas, like oil and coal, must eventually face the
challenge of massive reductions in greenhouse gas emissions, even
with carbon capture and storage.
That leaves a huge range of renewable energy sources and
technologies, and smarter, lower emission ways of using
conventional fossil fuels. Many of the key technologies we will
rely on in 40 years time are probably not even in the laboratory.
Others such as Fischer Tropsch synthesis have been around for years
and will become increasingly refined. This technology allows a wide
range of feedstocks containing carbon to be converted to a range of
So where does that leave Caltex? If global oil supply is limited
and the long-term energy landscape is changing, does Caltex have a
viable long-term future?
To answer this question, I'd like to talk about Caltex's customer
As a downstream petroleum company, our business is primarily about
fuelling mobile equipment, mainly in transport, although
convenience retailing is important and growing. Caltex fuels
one-third of Australia. Road transport dominates the customer base,
from private motorists through to light commercial vehicles and the
trucking industry. Then there's the aviation industry with jet fuel
in high demand, as well as diesel sales to the shipping and rail
industries. Caltex also keeps the mining and agricultural
industries moving, and we can't forget the non-transport uses for
our products, including chemicals, bitumen, lubricants, heating oil
and diesel for power generation.
Almost all fuels for mobile uses currently come from crude oil
which will decline in availability longer term. Transport emissions
account for approximately 14 per cent of Australia's greenhouse gas
emissions, so it's imperative we increase energy efficiency and
move to low-carbon transport technologies to address climate
Already we are seeing a wealth of technologies being introduced
into transport with the aim of reducing emissions and providing an
alternative to oil - thus addressing both climate change and energy
While the internal combustion engine dominates, petrol-electric
hybrids and full electric cars will increasingly appear on our
roads. This chart from a recent CSIRO study provides one scenario
for the penetration of hybrids and electric cars in
Toyota is planning to start producing hybrid Camrys at its
Melbourne plant next month and the pure-electric Mitsubishi i-Miev
is expected to be trialled here next year. That could be followed
by Nissan's all-electric Leaf by 2012. Others are on their way. But
for electric vehicles to be truly embraced by customers, there have
to be further technological developments in battery life and a
greater focus on ensuring these cars are powered by renewable
Hydrogen fuel cell vehicles may become a reality on our roads or
hydrogen may be used directly in internal combustion engines. At
the recent Tokyo Motor Show Honda showcased its hydrogen scooter, a
nice match for its hydrogen fuel-cell car launched earlier this
year. Research is continuing into synthetic fuels derived from
coal, gas and biomass, while heavy transport is increasingly
exploring the options of liquefied natural gas and compressed
There are plenty of opportunities for a company like Caltex and we
intend to explore them. But there's one renewable energy source
we're already committed to, and that's biofuels.
With ethanol blending facilities at a number of our terminals and
many of our service stations selling a 10 per cent ethanol/petrol
blend (E10) throughout New South Wales and Queensland, sales are
increasing. Caltex also sells biodiesel blends, in which the
biodiesel is derived from renewable sources. Biofuels can have wide
applications and research is being conducted overseas into powering
jet aircraft with biofuels.
If any of these new transport technologies are to truly thrive they
need supportive government policy. For example, there is no
coherent policy framework for biofuels development and we hope the
federal government's energy white paper will address this issue.
Government policies can help or hinder many alternative fuels. In
particular we are concerned about the impact of future excise
changes on biofuels development.
Price signals, particularly the price of oil, will have a major
influence on the viability of alternative fuels. The CPRS will
result in very little reduction in greenhouse gas emissions because
the price signal is very weak. Instead a package of complementary
measures is needed.
The package should include voluntary targets for the carbon
efficiency of new cars, incentives for consumers to buy more
fuel-efficient vehicles and grants to Australian manufacturers for
research and development into these cars. The government should
also encourage increased use of low-carbon fuels such as biofuels,
LPG, LNG and CNG with assistance for new refuelling facilities.
Finally, there should be a greater focus on more sustainable
cities. That means urban communities should be developed in a way
to allow people access to transport and to work closer to home, and
that public transport should be improved.
It is only through energy producers developing new energy sources,
customers embracing new energy technologies and governments
creating policies to ensure their viability that we can address the
twin challenges of climate change and energy security. And for
Caltex, which provides the links in the supply chain from energy
producers to customers, it's clear these changes will bring