According to Oil and Gas Journal (OGJ), Australia had 1.6 billion barrels of proven oil reserves as of January 1, 2007. The majority of these reserves are located off Western Australia in the Carnarvon basin and in the Bass Strait off Southern Australia. Oil production in Australia has increased gradually since 1980, peaking in 2000 at 805,000 thousand barrels per day (bbl/d). In 2003, production fell dramatically to 630,522 bbl/d. In 2006, Australia produced approximately 562,000 bbl/d of oil. Australia has experienced decreasing oil production due to oil producing basins such as Cooper-Eromanga and Gippsland experiencing natural declines, coupled with a lack of new fields coming online.

In 2006, Australia consumed approximately 925,000 bbl/d of oil, which resulted in net imports of around 362,200 bbl/d, or 39 percent of total consumption. By comparison, net oil imports in 2000 averaged only 65,000 bbl/d, or 7 percent of total consumption. The Australian government expects petroleum import dependency to increase to around 80 percent by 2010. The majority of Australia’s imported crude comes from the UAE, Malaysia, Vietnam, and Papua New Guinea. Australia’s key oil producers, Santos and Woodside, have shown signs of increasing domestic exploration and bringing new projects online in hopes of increasing domestic oil supplies and reducing imports.

Australia’s management of oil exploration and production is divided between the state and commonwealth (federal) governments. Australia’s state governments manage the applications for onshore exploration and production projects, while the commonwealth government shares jurisdiction over Australia’s offshore projects with the government of the adjacent state or Territory. The Ministry of Industry, Tourism and Resources (MITR) and the Ministerial Council of Energy (MCE) both function as regulatory bodies over Australia’s oil sector. In place of a national oil company (NOC), the Australian government supports privately held Australian companies, which include Woodside Petroleum Limited, Santos and BHP Billiton. Additional foreign players in Australia include Apache Corporation, Chevron, ExxonMobil, and Shell.

In 2004, the Australian government introduced a tax incentive designed to promote offshore petroleum exploration. Because of high cost and risk, around 50 percent of Australia’s offshore basins have not been explored. The tax incentive, which applies to frontier blocks opened between 2004 and 2008, will help to lower some of the exploration cost incurred by the oil companies. In addition, the Australian government made a four-year, $30 million commitment to fund AGSO-Geoscience Australia, a national agency that provides petroleum and natural gas companies with seismic and geological data.

New projects being brought online could help stabilize the country’s oil production over the next few years. In June 2006, AED Oil brought its Puffin field online, which added 25,000 bbl/d to Australia’s production. In July 2006, Woodside brought online the Enfield project. However, while the project was planned to have reached 100,000 bbl/d, output peaked at just 74,000 bbl/d, before dropping to 10,000 bbl/d due to water and sand in one of the main wells. Woodside has estimated that production from Enfield will average 50,000 bbl/d throughout 2007. In 2008, BHP Billiton has plans to bring online its Stybarrow field (80,000 bbl/d), while Woodside is planning to bring its Vincent field (100,000 bbl/d) online. In addition to new projects, Santos increased production at its Mutineer-Exeter project by drilling the first of three new wells on the fields. The first well increased production by 20,000 bbl/d to 55,000 bbl/d. Once all three wells are drilled, the Mutineer-Exeter project is expected to have production levels between 70,000 bbl/d - 90,000 bbl/d.

Australia has shale oil reserves in Queensland estimated as high as 30 billion barrels. Southern Pacific Petroleum (SPP) tried to develop the resource (the Stuart project), but funding issues and environmental agencies brought the project to a standstill. In 2004, Queensland Energy Resources Ltd (QERL) purchased the shale oil interests from SPP. QERL has been studying the economic viability of producing oil from the shale reserves, but it is unclear if, or when the resource will be developed.

The Australian government is continuing to issue new exploration permits in hopes of increasing domestic petroleum supply. In 2005, the government opened bidding for exploration permits in 29 new offshore areas in 13 regions. Larger blocks included areas in the Outer Exmouth Plateau, Bremer Sub-basin and Otway basin, while medium to smaller block areas were in the Northern Browse basin and Carnarvon basin. In May 2006, the government opened a licensing round, with 36 new offshore blocks for tender. Over half of the blocks being offered were located off the coast of Western Australia, while the remaining blocks were located off the Northern Territory and in the south off the coast of Victoria and Tasmania. Some of the blocks closed for bidding in November 2006, and the others will close for bidding in May 2007.

Australia has a well-developed oil and natural gas pipeline network. The Australian Pipeline Trust, with 4,350 miles of pipeline, is the largest operator. Epic Energy is the second largest, with 2,500 miles of pipeline. Santos operates two major domestic pipelines that are used for carrying oil and oil products, which include the Jackson to Brisbane line that spans 500 miles, and the Mereenie to Alice Springs line that covers 167 miles. In addition, Epic Energy operates the 432-mile Moomba to Stony Point pipeline, which is used for carrying crude oil and a mixture of natural gas liquids (NGLs). Finally, Esso Australia Ltd operates the Longford to Long Island Point pipeline, which runs 115 miles.

According to OGJ, Australia has seven major refineries, with total crude oil refining capacity of 704,659 bbl/d. Three refineries are located along Australia’s eastern coast in Queensland, three are located along the southern coast in Victoria and one is located in Western Australia. Feedstock for the refineries primarily comes from oil produced in Australia’s Bass Strait and other oil producing countries throughout South East Asia. Australian refineries mostly produce gasoline and diesel fuel, followed by some jet fuel, bitumen and liquid petroleum gas (LPG). Caltex controls roughly 30 percent of Australia’s refining industry. The company operates two refineries, Kurnell and Lytton, with total combined capacity of 214,109 bbl/d. BP operates the Kwinana refinery and the Bulwer Island refinery, with capacity of 132,050 bbl/d and 85,500 bbl/d, respectively. Shell operates the Geelong and Clyde refineries, while ExxonMobil operates the Altona refinery.

All seven refineries have experienced declining gross margins for several years, which is mainly due to competition from foreign refineries. Another factor hurting the country’s refiners is an oversupply of refining capacity in Asia, coupled with the high cost of transporting crude oil to Australia. Beginning in 2006, Australia enacted higher fuel quality standards, forcing most of the refineries to make costly facility upgrades.