Speech to the APPEA conference
15 May 2017
[Check against delivery]
It is a great honour to open your conference. I have been the Resources Minister for less than a year and this is my first APPEA conference. I am sure many in this room have attended many multiple times, as this conference has become one of the most important events in the resources sector calendar.
That’s occurred because of what you have achieved. This industry, in Australia, has made history. From when Woodside (Lakes Entrance) Oil was given exploration leases off the north-west coast of Western Australia, through to 60 years later when Australia is set to become the largest exporter of natural gas in the world, this has been an historic epoch in the development of the global resources industry.
It has been an industry developed by the private sector for private profit. It is a great testament to how, if you line the incentives up right, the development of resources can occur in a dramatic way.
As I have said before, our taxation policy should not be about maximising taxation revenues for the government, but maximising the economic activity that can occur. On this test, Australia’s resources policy has made great achievements.
I will talk about the PRRT review a little later.
Of course, part of maximising Australian economic activity is about making sure Australia can use a sufficient amount of its own resources. There is a robust discussion about that at the moment and I will talk more about that later too.
In fact, there is a lot to get to today so I had better get into it.
As this is my first address to you, I want to briefly spell out my vision for Australia’s oil and gas industry.
First, I want to sell the clear benefits of developing our resources in an environmentally sustainable way to the Australian people.
Second, I want a strong, competitive sector that continues to attract investment and contribute to the Australian economy.
Third, I want to ensure that the resources sector continues to play its historical role of contributing to the development of Australia by employing people on good wages, especially in regional areas so that we can develop our country away from just the big cities.
Finally, our resources sector should contribute to our own domestic energy security and help underpin the development of value-added industries in Australia, like petrochemicals, refineries and smelters. We have all the ingredients to make those industries work in Australia.
East Coast Gas Market
That last priority has come into stark relief on the east coast of Australia.
I have spoken to many manufacturers and heavy users of gas over the past few months. This has not just been with heavy users like Incitec Pivot, but with medium-sized businesses like Pactum Dairy and small businesses like Gouge Dry Cleaners in Shepparton.
These businesses have limited ability to pass on their costs, either because they are exporting into world markets or because they sell into concentrated retail markets whose marketing slogans are dominated by the need to get prices down, down, down at the moment.
The answer to a shortage and higher prices would normally be greater supply. That would be an example of a market functioning. That is not happening, however, because of moratoria and bans that exist at the State and Territory level and rigidities in the long-term contracts for gas.
Increasing gas supplies – including from unconventional gas sources and improved gas market competition, transparency and operations – provides the best solutions to help industrial and other users deal with the changing gas market conditions.
In the absence of that happening, however, the Federal Government cannot sit idly by while jobs are lost because we are paying higher gas prices here than in the overseas export markets we supply. That is not a sustainable outcome for your industry.
So, we have stepped in to introduce gas export licensing. This is not a move that we welcomed or preferred but it is a targeted and temporary response to the pressures we are facing.
These restrictions will only apply to an identified gas shortage that puts Australia’s needs and jobs at risk, and will only apply on export operations that are, in effect, drawing down supply from the domestic gas market in net terms.
We have designed the mechanism to be precisely targeted at the problem the east coast gas market faces. I know that there has been criticism that it is too targeted but I reject any suggestion that this mechanism is targeted at one company or one consortia.
Our measure is targeted at the problem and targeted to find solutions to that problem.
We are now consulting on the detailed design of the mechanism and I thank those who have been involved in discussions so far. The Government intends to have the mechanism in place by 1 July this year.
The mechanism will work alongside other gas market reforms, including gas market transparency work by the ACCC and the Gas Supply Guarantee announced after the Prime Minister’s meeting with the industry in March.
It supplements producers’ guarantees that gas will be available to meet peak electricity demand, and an agreement by two LNG exporters to being net domestic gas contributors, as part of their social licence.
Last week in the budget too, the Australian Government has announced $90 million in funding to encourage more supplies of gas.
We are providing $30.4 million over four years for combined bioregional and geological assessments to be conducted by the CSIRO and Geoscience Australia.
This work will identify the potential impacts on water resources and other environmental assets of three prospective onshore unconventional gas sites.
In addition, we will spend $19.6 million over four years for the Gas Market Reform Group to accelerate reforms agreed by the COAG Energy Council to improve gas market efficiency and transparency.
The package also includes $7.6 million in 2017-18 for:
- pre-feasibility studies and cost benefit analyses of two potentialgas pipelines to South Australia; one from the Northern Territory and one from Western Australia;
- AEMO will undertake a scoping study of potential improvementsto the National Gas Services Bulletin Board that would allow users to view real-time data about gasavailability;
- an examination of the constraints on increased gas supply on the east coast of Australia;and
- a detailed study of current and potential gas production in offshore south-eastern Australia.
The Government will provide $6.6 million for the ACCC to establish a monitoring regime for the gas market to provide greater transparency of transactions in the gas market, including factors affecting supply and pricing.
We will also invest $28 million to directly invest in new gas supplies by partnering with the private sector to find and develop new supplies of gas.
I intend that this scheme will work with existing programs like the PACE program in South Australia. The Australian Government will only fund developments in jurisdictions that can show a clear pathway to gas development (that is, there is no moratorium in place) and where landowners can make a sufficient return from the wealth generated on their properties (like South Australia’s recent royalty share arrangement).
On this latter point, I would like to draw a comparison to the PRRT issue. Imagine if the Government responded to the PRRT review and said: “Look, we will compensate you for what you have spent in your acreage areas but, from here on in, we are going to take all the profits. You shouldn’t complain because you won’t be left out of pocket.”
Now the Government is not going to do that but I can imagine the reaction if we tried!
But put yourself in the landowner’s shoes. Too often they are expected just to accept “compensation”, not a “return”. Yet the wealth is generated on their property. They deserve a better deal and, until they do, I don’t think we will successfully overcome the political opposition to gas development.
Petroleum Resource Rent Tax
But on to the actual PRRT review.
Last November, the Treasurer appointed independent expert Michael Callaghan to review the operation of the Petroleum Resource Rent Tax, crude oil excise and associated Commonwealth royalties.
After a comprehensive consultation and submission process, Mr Callaghan presented his report to the Government recently.
I welcome the final report and thank Mike. His thorough and inclusive approach has delivered a factual and balanced analysis, taking into account all views.
The report confirms our view that providing fiscal stability for capital-intensive investments is important, particularly given the size of investments in the oil and gas sector over the last 30 years.
And, despite its age, the PRRT is a good tax, based on sound economic theory.
It has provided the Australian community with a fair return from the development of our country’s non-renewable resources for almost 30 years, and will continue to do so.
That is not to say we should not consider opportunities for improvement.
The nature of the industry has changed, particularly with the development of modern LNG projects.
Recognising this and other changes to the way industry operates, the review has recommended the Government consult industry and the community to ensure the PRRT regime is appropriate for the modern era.
The Government will consider all the review’s recommendations carefully before responding.
Initially, I think each recommendation appears balanced, sensible and justifiable.
I stress that any further consultation on possible changes will be undertaken with an open mind and include all interested stakeholders.
In the same vein, we will adopt an open and consultative approach on the review of retention leases, to be completed by a working group of the COAG Energy Council.
Australia has an outstanding reputation as an investment destination for resources sector projects. Not only is it important to maintain that reputation, but also we must build on it while balancing the need for the Australian community to receive a fair return on its resources.
2017 Acreage Release
While on the subject of new policies, it would seem appropriate to talk about how results of the Offshore Petroleum Resource Management Review might influence how we do the release process in the future.
For acreage release, our broad approach is to promote efficient and competitive petroleum exploration while minimising risk to the marine environment and all of its users.
The goal is to maximise the contribution the industry makes to the wellbeing of all Australians. That contribution is best made by efficient, successful exploration and production.
We are looking to reform acreage release to maximise exploration investment and reduce non-financial barriers to exploration, including:
- reducing overall length of time from industry identifying and interest in an area to awarding apermit;
- increasing availability of areas for bidding; and
- actions to stimulate frontier exploration.
I hope this will result in increased exploration activity across Australia and, while these are only ideas at this stage, my department and I are looking forward to discussing these and other ideas with you over the coming months.
In February, the Government awarded its first cash bid exploration permit since the policy was reintroduced in 2014.
I was also pleased to see strong and competitive industry bidding in round 2 of the 2016 acreage release after a thin response to round 1.
Bids for the 12 areas in round 2 closed in March. It’s very heartening that seven of the 12 areas attracted 15 bids.
The Government wants to ensure that industry is ready for the eventual strengthening of the oil price, by implementing policy reforms and ensuring that renewed exploration will continue to meet Australia’s future energy security needs.
Against that, I’m pleased to announce the 2017 Offshore Petroleum Exploration Acreage Release.
The 2017 acreage release offers 21 new areas for exploration.
Of these, 20 are for work program bidding and one area, in the highly prospective Dampier Sub-basin of the Northern Carnarvon Basin, is for cash bidding.
The release includes five areas close to existing infrastructure in offshore Victoria and Tasmania. I hope prospective bidders will carefully consider these areas in the context of supporting Australia’s east coast gas market.
This year’s release shines light on some more lightly explored areas identified by Geoscience Australia.
They are opportunities to search for new sources of oil and gas outside the proven provinces by applying the flexibility that was incorporated into the 2015 exploration guideline update.
We need to be exploring for the next Bass Strait to avoid compounding existing market supply issues.
Geoscience Australia supports the annual release with the acquisition and interpretation of pre-competitive data to offset strong competition from other countries offering alternative petroleum exploration and project development opportunities.
This year, we’re releasing new data to improve the understanding of hydrocarbon prospectivity in the Perth Basin, and recently completed regional studies that highlight the vast remaining potential of the Browse Basin.
Bruce Wilson, the head of my department’s Resources Division, and also Geoscience Australia officials, will give you more details tomorrow.
Launch NOPIMS 2017
Today, the Government is also pleased to launch the new-look National Offshore Petroleum Information System, NOPIMS 2017.
It’s the new-look NOPIMS because it’s undergone a major redevelopment since it was first presented in 2015.
This has resulted in a modern and functional discovery and delivery platform for all Australian offshore petroleum data.
NOPIMS 2017 data contains data for close to 3,500 wells and over 2,000 surveys.
All data is hosted in the cloud and can be accessed at any time at no cost.
This new version goes live today and is on display at the Australian Government booth.
Congratulations to the Geoscience Australia team for continuing to deliver world-class data in new and innovative ways.
New GA Head
And in that vein I want to congratulate Dr James Johnson, the new Chief Executive Officer at Geoscience Australia.
James has more than 30 years’ experience in the geoscience sector, most recently as deputy CEO at GA.
l know you will join me in congratulating him on his appointment, as well as acknowledging the sterling efforts of James’ predecessor, Dr Chris Pigram.
During his tenure, Chris positioned Geoscience Australia as a highly respected supporter of government and industry.
He has been a trusted adviser, both to me but also to many colleagues in government and industry. We wish him well in retirement.
This year also marks the five-year anniversary of the establishment of NOPTA and NOPSEMA, both of which continue to contribute to ensuring Australia has a world-class offshore petroleum sector.
I will conclude where I started: praising you for your achievements in building a huge export industry for Australia.
That has been done in the pursuit of profit and investments. The history of Australian resources policy shows that where we allow private profit benefit from investment, developments occur, jobs get created and wealth is generated.
There is a great line in Geoffrey Blainey’s history of Australian mining, The Rush that Never Ended, where two Australian mining entrepreneurs apparently said: “Why should we mine gold when any gold we find will necessarily lapse to the Crown?”
Blainey convincingly showed that it was not until Australian lawmakers created the licensing system, and let miners keep a share of the gold, that gold mining flourished.
As we face issues with gas supplies on the east coast of Australia, I suggest that we need to let landowners keep more of the wealth created from the gas that is developed on their land.
Only then will they support and welcome the development of a gas industry.