Carbon policy risk to Australia’s upstream oil and gas sector is “high”, yet investors are undeterred, says global energy consultancy Wood Mackenzie.

“Australia is classified as having a high upstream carbon policy risk, based on its Paris Agreement emissions target, likely policies to meet that goal and the fact that it already has sector-specific emissions regulations in place,” said Amy Bowe, Wood Mackenzie director and co-author of the Positioning for the Future report.

On the whole, carbon policy risk across the global upstream sector came in lower than they expected.

But Australia was one of the few countries that fell into the high category. Only Norway fell into the ‘extreme’ category.

The analysis of the cost of carbon on oil and gas explorers and producers — the ‘upstream’ part of a system that discovers, produces, distributes and sells energy — ranked Australia 9th in the world in terms of absolute emissions from this sector.

Yet it ranks 10th in terms of production.

That is because the average emissions intensity of Australia’s upstream assets is nearly 50 per cent higher than the global average, says Ms Bowe.

“Per unit of production (measured in megajoules), Australian operations release 5.9 gCO2 compared to the global average of 4.0 gCO2.”

Emissions from this sector are expected to rise by 53 per cent between 2016-2025, compared to a 75 per cent rise in production.

In Australia, LNG (liquefied natural gas) operations account for this higher than average CO2 emissions intensity, with a rate of 8.5 gCO2/MJ versus 3.5 gCO2/MJ for Australia’s conventional offshore assets or 1.0 gCO2/MJ for coalbed methane.

Investors are backing the sector

However, the threat of a forecast 3 per cent drop in value in Australia oil and gas portfolios is not yet deterring investors.

The more pressing political battle in Australia today is over electricity prices and fears that this summer will see another shortage of gas on the east coast.

In spite of that policy risk, which sees a $US40/tonne carbon cost for Australia, those fears and a turn up in interest for commodities are spurring new exploration across the country.

Argonaut Securities executive director of corporate stockbroking Kevin Johnson said earlier this month that the sector had turned a corner and forecast that drilling and investment would begin to turn up from now.

Both Elk Petroleum (ASX:ELK) and Strike Energy (ASX:STX) saw strong support for their capital raisings this week, as was Buru Energy’s (ASX:BRU) $14.5 million rights issue this month.

Elk’s $25.7 million placement funded an acquisition in Utah, while Strike’s $9.1 million round will pay for its Jaws-1 appraisal program in the southern Cooper Basin in Queensland – one of the feeder areas for the LNG plants in the state. Buru Energy will use its money to speed up development at its West Australia Ungani oilfield.

Earlier in September, Senex (ASX:SXY) won a major exploration permit from the Queensland government to search for gas in the Surat Basin, another LNG feeder area.

The risk from Australia’s carbon policies is clearly not weighing yet on investors in the sector.