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Sydney - Australian energy firms are having to reassess their investment strategies and outlook as oil prices sit at multi-year lows, with analysts warning of knock-on effects for the wider economy as it shifts away from resources-driven growth.
Opec's decision to maintain output sent the price of oil plunging last week, extending a sell-off since June that has been fuelled by a supply glut and slow demand growth.
US benchmark West Texas Intermediate for January delivery fell as low as $63.72, a level last seen in July 2009.
And a slight rebound earlier this week was likely to be a technical correction rather than an end to the downward spiral, expects said, and energy stocks are facing growing questions from investors.
"If prices continue to decline... and they stay in a weakened position, then that will obviously put under pressure some projects because the business cases just won't last," energy analyst Tony Webber of the University of Sydney told AFP.
"The bigger companies with the bigger cash balances can survive for longer. I think the companies that are pulling commodities out of the ground that have higher unit costs - they will really struggle."
The sinking oil price mirrors the falls experienced by other commodities such as iron ore, and has a broader impact on an economy that has been driven by a decade-long boom in the resources sector.
Data Wednesday showed national income has been hit by the plunging commodity prices, with economic growth coming in at a below-forecast 0.3% in July-September, representing an annual rate of 2.7%.
"This weakness in income will flow through to softer growth in the real economy, and was the main reason for ANZ's recent downgrade to its growth forecasts and change to its monetary policy call," ANZ senior economist Felicity Emmett said.
"Soft income growth will weigh on profits, wages, and public revenues, and flow through to softer consumer spending, business investment and public demand."
'Severe sell-off'
Leading oil and gas producers such as Woodside Petroleum have all lost more than 10% of their value over the past few days, with Santos one of the hardest hit after plunging 21.5% in two trading sessions.
"It's been a pretty severe sell-off," Canaccord Genuity's oil and gas analyst Johan Hedstrom told AFP, noting that some of the small and mid-cap companies had seen their share price more than halved in recent months.
"Investors are not really distinguishing between those that are really vulnerable and those that are actually quite robust. They are selling everything."
One of the country's leading energy companies, Oil Search, said this week the "significant drop" in prices had taken the industry by surprise and a quick return to previous levels was not expected.
However, Oil Search has been cited as one of the firms best-placed to weather the storm with its strong balance sheet and involvement in a landmark US$19bn Papua New Guinea gas project, which made its first shipment earlier this year.
And while Woodside, which operates six of Australia's seven liquefied natural gas (LNG) processing facilities, has been hurt by lower oil prices, it too had a healthy balance sheet, Credit Suisse energy analyst Mark Samter said.
But other energy companies may not have as favourable an outlook if prices remain depressed, with Santos - another big energy producer - seen as particularly vulnerable even as it flags a capital raising.
Australia has three operating LNG plants and seven others under construction worth more than Aus$200bn ($170bn). It is set to become the world's biggest natural gas producer with predictions it will overtake Qatar by 2020.
Further decline
Even so, the country is seen as a high-cost producer, and the plunging oil price has placed pressure on the value of LNG, with Woodside warning last month that it would threaten new projects.
While leaders are trying to transition the economy away from resources owing to an expected drop off in mining investment and weaker demand from key customer China, the fall in commodity prices will make their job that much harder.
Australia's terms of trade declined 3.5%, Wednesday's data showed, while real gross domestic income - a measure of the nation's earnings - fell 0.4%, after a 0.3% fall in the previous three months.
"That's the second consecutive (quarterly) decline, and arguably means that Australia has been in an income recession for the first time since the financial crisis," Bank of America Merrill Lynch's chief economist Saul Eslake told AFP.
However the declining oil price could also lower already soft inflation levels, giving the Reserve Bank of Australia room to keep interest rates at a record low of 2.5% to stimulate the economy.
