News: STO COLUMN-Green penny finally drops for Australia's oil and gas industry: Russell

(The opinions expressed here are those of the author, a columnist for Reuters.)

How can Australia's oil and gas industry, on the cusp of becoming the world's largest exporter of liquefied natural gas (LNG), have failed so comprehensively in the public relations battle against environmental activists?

This was the question posed by Kevin Gallagher, chief executive of Santos Ltd (STO) , the country's No. 2 oil and gas producer, to the annual conference of the Australian Petroleum Production and Exploration Association.

It's taken several years, but the country's LNG producers have finally realised there is mounting public anger against their industry, and they are very much on the back foot when it comes to telling what they believe is a positive story.

The public relations problems for the industry have been brewing for several years, but have been greatly exacerbated in the past year by a combination of factors.

These include sharply higher natural gas prices for domestic consumers and a well-orchestrated campaign by green activists against the industry.

This environmental campaign attacks the industry on several levels, from claiming that onshore natural gas production is unsafe and will damage farmland, to articulating that the rise of Australia's LNG export industry has raised prices and starved domestic consumers of supply, to drawing a direct link between natural gas production and climate change.

Not all of these arguments stand up to scrutiny, but the industry has been slow to realise that relying on reasoned and science-based arguments when its opponents are using populism and fear and outrage is a losing position.

What the industry has taken too long to realise is that in the court of public opinion it doesn't matter that 13 different government inquiries have found that extracting natural gas is safe as long as it is properly regulated, if the populace believes the scare-mongering of activists and farmers.

A refusal to engage has cost the industry credibility, and rebuilding a public image of LNG producers as a valuable contributor to society will take time, despite the $200 billion the industry has invested over the past decade to build eight new LNG projects.

Zoe Yujnovich, chairwoman of Royal Dutch Shell's RDSa.L operations in Australia and also of APPEA, told the conference the industry was well received and respected in the largely remote communities where its operations are located, but vilified and distrusted in Australia's large cities.

"So, a question we must answer i Why is there such a gulf in perception from the regional areas where we operate to the commentators and activists of the inner city who rely on our products?" she said.

TIME TO ENGAGE Yujnovich said the industry has been unwilling to engage in conversations with other Australians, and when it has, it has chosen to avoid challenging or confrontational dialogue.

In effect, the industry has sat in its ivory tower, believing that science backs its positions and that its products provide the energy the community needs.

It's this sort of disengagement that has allowed the industry to be tarred with the narrative that it doesn't contribute its fair share of taxes, that it is sending Australians' natural resources offshore for its own profit, and that it is responsible for surging domestic prices for natural gas and electricity.

There is an element of truth to the pricing argument against the industry, insofar as the establishment of three LNG export plants on the east coast in Queensland state has effectively linked the domestic natural gas price to Asian LNG prices.

Instead of recognising the issue, the industry pushed back against government plans to ensure that domestic gas supply needs were met before the demands of the LNG plants.

The industry has also been largely ineffectual in lobbying the various state and territory governments to open up more onshore exploration areas and end bans that have been imposed.

The Australian states of New South Wales, Victoria and Tasmania all have some form of ban or restriction on natural gas exploration and production, and the Northern Territory just lifted a ban on hydraulic fracturing after a government inquiry found the risks could be managed.

There are several steps the Australian natural gas industry can take to improve its public image and rebuild trust.

The first is to cooperate with each other to ensure the domestic market is well supplied at prices that will allow industrial companies to continue to be competitive, thus preventing them from shifting operations offshore.

The second is to ensure that governments realise that increasing supply is a key way of delivering cheaper prices.

And the third is to do more than just engage communities where they operate, but also to talk to people in the cities as to what the industry actually delivers, and what it can't.