Matt Chambers The Australian

AUSTRALIA'S oil and gas industry meets in Darwin this week for its annual get-together in circumstances vastly changed from last year, with the peak industry group now warning that liquefied natural gas (LNG) projects face challenges.

Slumping energy prices in the past year have stripped away profits and demand from oil and LNG.

On the positive side, Queensland's burgeoning coal seam gas export industry has developed rapidly.

The Australian Petroleum Production and Exploration Association (APPEA) has backed away from last year's goals of tripling the nation's annual LNG output to 60 million tonnes.

A return to a 2007 target of 50 million tonnes comes after outspoken Woodside chief executive Don Voelte last year ridiculed the 60 million tonne target as unrealistic. Mr Voelte's address to the conference tomorrow morning on the course ahead for Australian LNG is among the most anticipated.

APPEA, which was hosting the three-day conference from today, said the global financial crisis could affect LNG projects because they cost so much to build.

It also said the LNG market was growing at its slowest pace in decades.

"Growth should recover as economic conditions improve. However, it may take a long time to return to growth rates previously envisaged," APPEA said in its "State of the Industry" report released yesterday.

While APPEA said the 50 million tonne LNG target was still achievable, helped by the Queensland CSG boom, it would be tough. "In most cases, economics remain challenging and projects that had been moving towards a go-ahead decision in late 2009 or early 2010 may be affected by the reduced availability of capital and softening gas demand caused by the global economic downturn," the association said.

Domestic gas demand growth could also be hampered, particularly if a number of proposed energy-intensive magnetite iron ore mines did not go ahead or were deferred.

Despite the gloom, APPEA chairman Eric Streitberg said the LNG industry could lead the nation's economic recovery.

"We provide 9 per cent of global supply and if we get the policy settings right, we have the potential to grow to 20 per cent," he said yesterday.

One of the major industry concerns at the conference will be the Rudd Government's impending carbon pollution reduction scheme, which is causing concerns for some in the industry, while others see opportunities.