Monday, 11 February 2013

Significant oil discovery assists Canberra's regional objectives

If the Arckaringa Basin doesn’t ring a bell, chances are it will in a few years. That’s if the reports of a truly gigantic deposit of shale oil in the South Australian outback prove accurate.

An independent study conducted by Linc Energy announced 24 January that the company’s 16 million acres of hot Australian desert could hold between 133 and 233 billion barrels of shale oil cosily sitting deep in the rocks. The new find could rival Saudi Arabia, with estimated oil reserves of 262 billion barrels and Venezuela, with 211 billion barrels.

The quality of the oil is largely uncertain but it is mostly embedded in shale, requiring the now-proven but expensive and environmentally controversial process known as fracking to free the oil.

Source: Linc Energy
Just such growing environmental concerns could place the promising find in jeopardy. Already the governmental barriers being raised have turned away foreign energy investors such as Apache Energy and Canadian-owned Bight Petroleum from conducting exploration and surveys in the country. As a result, cooling investor interest could be a major obstacle in developing the Arckaringa Basin if Canberra erects more barriers in this direction.

If all goes to plan, the Arckaringa Basin could net around 20 trillion dollars for the Australian economy. Getting into the position where the deposit can be extracted however, could be a long process costing upwards of AUD$400 million due to the remoteness and depth of the field. This raises questions about the commercial viability of developing the find.

But Australia could become a net exporter of oil if the basin comes online, and the country could soon enter the elite club of the world’s biggest energy exporters. Both the United States and Australia will likely become net energy exporters this century, a fact set to profoundly change the geopolitical landscape.

Just as important, Australian Prime Minister Julia Gillard also launched Australia’s first National Security Strategy on 23 January. The paper has three major columns.

The first is “deterring and defeating attacks on Australia and Australia’s interest”. Here Ms Gillard will build on her predecessor Kevin Rudd’s strategy of modernising the Australian military. But with defence spending reaching criticised lows of 1.6% of GDP, Ms Gillard will face fiscal obstacles chasing this objective.

The second column emphasises Australia’s role in “understanding and being influential in the world”. Australia will increase an already significant multilateral relationship with both China and India, while signing robust security accords with Singapore, the Philippines and Vietnam as part of Canberra’s own “Pacific Pivot”.

Drilling at Maglia-1, Arckaringa Basin, South Australia. Source: Linc Energy
Third, Australia’s special relationship with the United States remains a heavy feature for the future, with more than 2500 U.S. Marines rotating in and out of Australian military bases in Darwin. Closer interoperability between Australian and American military hardware will also increase as Canberra plans to purchase high-end American weaponry.

The paper is important because it was released early in an election year. The Prime Minister recently announced 14 September 2013 as the date to take the country to the polls.

Ms Gillard’s new strategy will almost certainly require an increased military budget. And, thankfully for the current government, a recent poll conducted by the Lowy Institute suggests she may have the support of Australians to do so. Apparently upwards of 40% of Australians view China as a growing regional threat and would be in favour of Australia increasing their military capabilities.

Competing militarily with greater powers such as China requires sufficient funding and long-term political willpower which so far is absent in Australia. But predicting Australia’s regional goals to be fulfilled with a shrinking defence budget is bold at best. If Ms Gillard remains in power, the planned defence budget will have to be paid for somehow and the budget markedly ramped up.

This gives some context to the importance of the Arckaringa Basin energy discovery.

If the estimates are accurate, the development cost not stratospherically high, and the profits of selling the extracted oil continue to be reasonable then Canberra could have found all the capital it needs to construct a truly mature defence posture in the Asia-Pacific region.

Australia’s imperative of ensuring the Strait of Malacca stays clear of belligerent obstruction so it can ship their enormous resources into the heart of the new Asian economic centre of gravity is a great motivation to develop a stronger Australian military. Canberra’s current reliance on American naval power to do this job for them cannot be assumed to be a future constant.

And, using China as bogeyman is one way to encourage Australian constituencies to support a more beefy foreign policy and agree to the need for bigger military budgets.

Most strategic plans offer the usual doomsday list of threats, to be soberly handing out to the media near election time and then quickly forgotten once the polling booths close. But while many features of Australia’s national security plan are simply forgettable, the take-home points outlined above will directly affect future events in the Asia-Pacific and will certainly be taken seriously by Australia’s allies and rivals.

They are all bound to peer closer as Australia develops gigantic energy fields and appears more and more to become this century’s “Saudi Arabia of energy”.

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